Consumer sentiment surges while inflation outlook dips, survey shows

Forex Trading / 2 février 2023

Each survey contains approximately 50 core questions, and each respondent is contacted again for another survey six months after completing the first one. The preliminary report is generally released during the middle of the month and covers survey responses collected in the first two weeks of the month. The final report is released at the end of the month and covers the full month. Whether the sentiment is optimistic, pessimistic, or neutral, the survey signals information about near-term consumer spending plans. The survey queries consumers on their views of their own personal finances, as well as the short-term and long-term state of the U.S. economy. The Michigan Consumer Sentiment Index has provided a relatively accurate forecast of future consumer confidence and spending for the past several decades.

For example, there were three months of plus-four-point gains for consumer sentiment starting in August 1980, a month after the recession ended, as dated by the National Bureau of Economic Research. The Philly Fed reading for that first month was -39.4, though it moved up to +24.7 by October. Kyla Scanlon, the Bloomberg columnist who coined the term vibecession to refer to the historically depressed consumer sentiment in the face of solid economic data, has declared that phenomenon is now over. «Consumer views were supported by confidence that inflation has turned a corner and strengthening income expectations,» Hsu said. Data out earlier Friday morning showed inflation unexpectedly speeding up in May to a year-over-year pace of 8.6%. The uptick was largely powered by skyrocketing energy prices, with the cost of gasoline and fuel oil both surging last month.

  1. The Michigan Consumer Sentiment Index has provided a relatively accurate forecast of future consumer confidence and spending for the past several decades.
  2. Though not as bad as the New York Empire State index, the most recent Philly Fed reading was negative 10.6.
  3. The Michigan Consumer Sentiment Index (MCSI) is a monthly survey of consumer confidence levels in the United States conducted by the University of Michigan.
  4. The Index of Consumer Expectations (a sub-index of ICS) is included in the Leading Indicator Composite Index published by the U.S.
  5. Here were the most active stock-market tickers on MarketWatch as of 6 a.m.

Investing.com – US stock futures were trading in negative territory during Sunday’s evening deals, following a mixed week for benchmark averages amid mixed inflation data and major financial earnings… Monitor Market dynamics, Economies & Risk across financial assets, countries &
business sectors affecting your business or investments. The University of Michigan’s Survey of Consumers showed a reading of 78.8 for January, its highest level since July 2021 and up 21.4% from a year ago. That followed a big jump in December and comes despite public opinion surveys showing concern about the nation’s direction.

The Index of Consumer Sentiment (ICS) is developed from these interviews. The Index of Consumer Expectations (a sub-index of ICS) is included in the Leading Indicator Composite Index published by the U.S. Consumer sentiment is a statistical measurement https://bigbostrade.com/ of the overall health of the economy as determined by consumer opinion. The other times the University of Michigan series was moving up significantly but the Philly Fed series was in negative territory, the economy was moving out of a recession.

It has come to be included in the larger index of Leading Composite Indicators published free forex software by the Bureau of Economic Analysis (BEA) through the Department of Commerce.

How Investors Can Use the CSI

The outlook for the inflation rate a year from now declined to 2.9%, down from 3.1% in December for the lowest reading since December 2020. The Federal Reserve has boosted short-term interest rates to their highest level in more than 22 years and inflation has followed suit lower, though it remains above the central bank’s 2% target. Erika Rasure is globally-recognized as a leading consumer economics subject matter expert, researcher, and educator. She is a financial therapist and transformational coach, with a special interest in helping women learn how to invest. Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader.

NOTES

History shows that consumer confidence has been at its lowest point just prior to and in the midst of recessionary periods. The index rises when consumers regain confidence in the economy, which portends increased consumer spending and thus economic growth. This growth, in turn, leads to greater interest from foreign investors, which results in the increased value of the dollar against other foreign currencies. Historically speaking, the value of the dollar has usually risen whenever the Michigan CSI has come in at a higher level than was anticipated and fallen when the index came in lower. The Michigan Consumer Sentiment Index (MCSI) is a monthly survey of consumer confidence levels in the United States conducted by the University of Michigan. The survey is based on telephone interviews that gather information on consumer expectations for the economy.

As borrowing gets more expensive, shoppers tend to slow their spending and shift more toward saving their cash. The S&P 500 has made multiple new all-time highs and Wednesday’s late-day reversal raised questions about the current phase of the rally. To calculate the CSI, first compute the relative scores (the percent giving favorable replies minus the percent giving unfavorable replies, plus 100) for each of the five index questions. Using the formula shown below, add the five relative scores, divide by the 1966 base period total of 6.7558, and add 2.0 (a constant to correct for sample design changes from the 1950s). The Index of Consumer Expectations (ICE) was created as a subsidiary survey of the MCSI.

United States University of Michigan Consumer Sentiment Statistics

About 60% of each monthly survey consists of new responses, and the remaining 40% is drawn from repeat surveys. The repeat surveys help reveal the changes in consumer sentiment over time and provide a more accurate measure of consumer confidence. The survey also attempts to accurately incorporate consumer expectations into behavioral spending and saving models in an empirical fashion. The Michigan CSI has grown from its inception to be regarded as one of the leading indicators of consumer sentiment in the United States.

They increasingly expect inflation to continue its descent, preliminary data indicates, and they think interest rates will soon moderate. Consumer sentiment has improved amid a drop in gasoline prices and solid stock market gains. The price at the pump for a gallon of regular gas is about 30 cents lower than it was a year ago, according to AAA, and the S&P 500 is near a record high.

Releases

«While consumer spending has remained robust so far, the broad deterioration of sentiment may lead them to cut back on spending and thereby slow down economic growth,» Hsu said. Please review the copyright information in the series notes before sharing. We’ll give credit to Evercore strategist Julian Emanuel, for a note published Tuesday morning but usually written the night before, for this chart which he called China’s “national fate line” being breached. He asked whether a policy response for the ailing stock market would be forthcoming, as a report says it will be. Using a three-month average to smooth things out, there have only been 12 instances since 1978 when there’s been at least a 4-point rise in the University of Michigan consumer sentiment index, excluding consecutive readings. Preliminary January data from the University of Michigan survey suggested that consumer confidence is back at summer 2021 levels.

That reflects the lowest level since regular monthly data collection began in the late 1970s. The print also landed well below the median forecast of 58.1 from economists surveyed by Bloomberg. When consumer confidence increases, certain sectors tend to benefit sooner than others. Companies that provide consumer goods often reap the initial fruits of improved consumer sentiment. Consumers who feel more confident about the economy generally also feel better about their employment prospects and are therefore more willing to buy houses, cars, appliances, and other items.

It is likely good news — but how it will map to votes is complicated. Help your friends make the right business & financial decisions using free MacroVar analytics. The Federal Reserve is also raising interest rates at the fastest pace in 22 years.

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