The University of Michigan Consumer Sentiment Index is produced by U of M and Thomson Reuters based on 500 telephone interviews of consumers in the 48 contiguous states. The respondents are asked five simple questions about the general economy and their own economic situation. They can answer that things are better, worse, or the same. Two of the five questions ask about current conditions both for their family and for the country as a whole. The other three ask about future conditions and future capital goods spending. Three indexes are based on the answers to the questions. The Consumer Sentiment Index uses answers from all five questions, the Index of Consumer Expectations uses data from the three questions that ask about future conditions and the Index of Current Economic Conditions uses data from the two questions that ask about current family and business conditions.
According to Reuters the index was up 0.8 in February at 81.2. The present situation component of the index which shows how consumer’s are feeling in mid-February was sown 2.8 points from the end of January which is the lowest mark since November, suggesting that the first quarter is not shaping up to be a blockbuster for retail sales. On the other hand, the expectations component is up 1.8 points to 73.0. This jump was unexpected considering the weak economic statistics overall, but does suggest that the sun may be finally rising on the 5-year old recovery.
Month to month percentage and absolute changes in the index do not have much meaning since the number is not actually an index but a measurement of current consumer bullishness. It is very variable and influenced by a huge number of outside factors. It is just as likely that the increase in consumer expectations is related to the fact that spring is only 6 weeks away as it is to improvements in the job market. The slow recovery has kept a lid on both full-time employment opportunities as well as wages, and this has been felt very strongly in the retail market (something which is measured by consumer sentiment). Continued weak sentiment will put more pressure on not only marginal retailers, but many established brands will continue to feel the pinch.
It is unlikely that the recovery will gain much steam throughout 2014. Without any positive exogenous (outside) shocks to the economic system – say a new type of energy is discovered, or cancer is cured – sentiment is likely to continue to be soft and this will be reflected in retail sales.
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