Econoday Economic Report: Consumer Sentiment May 15, 2009

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Consumer Sentiment

Released On 5/15/2009 9:55:00 AM For May, 2009

	Prior	Consensus	Consensus Range	Actual
Sentiment Index - Level	65.1	67.0	64.9 to 70.0	67.9

Highlights
Consumer spirits continue to improve with the Reuters/University of Michigan consumer sentiment index offering the latest evidence, at 67.9 at mid-month May. The index is going up in increments: 65.1 at month-end April, 61.9 at mid-month April, 57.3 at month-end March, and 56.6 at mid-month March. It was mid-month March that the stock market, in reaction to improvement in the banking sector, began to take off, an important factor behind the improvement in consumer confidence.

The improvement is centered where it should be: expectations. The report's expectations component jumped nearly 6 points to 69.0, an echo of this morning's outlook numbers in the Empire State report. Confidence is building that the worst is now behind. In contrast, the assessment of current conditions remains very weak, at 66.2 for an actual decline since month-end April. Declines in today's industrial production report offer clear evidence that conditions are in fact currently weak.

Price changes do not appear to be a risk, evidenced by today's CPI report and in this report's inflation readings which show no dangerous expectations for either inflation or deflation. One-year expectations did fall 2 tenths to 2.6 percent but 5-year expectations are unchanged at 2.8 percent. There was no significant reaction to this report.

Market Consensus before announcement
The Reuter's/University of Michigan's Consumer sentiment index picked up in the final April reading, continuing a run of less negative consumer confidence readings. The Reuters/University of Michigan index rose to 65.1 from a mid-month reading of 61.9 and a March reading of 57.3. But it has been a duel between current conditions and expectations. Consumers have grown more optimistic about future economic conditions than about the current situation. The latest report showed strength in expectations, rising to 63.1 from 58.9 at mid-month. However, if job market conditions continue to worsen, expectations could ease. Both current conditions and expectations indexes remain at very low levels.

Definition
The University of Michigan's Consumer Survey Center questions 500 households each month on their financial conditions and attitudes about the economy. Consumer sentiment is directly related to the strength of consumer spending. Consumer confidence and consumer sentiment are two ways of talking about consumer attitudes. Among economic reports, consumer sentiment refers to the Michigan survey while consumer confidence refers to The Conference Board's survey. Preliminary estimates for a month are released at mid-month. Final estimates for a month are released near the end of the month. Why Investors Care

Consumer sentiment is mainly affected by inflation and employment conditions. However, consumers are also impacted by current events such as bear & bull markets, geopolitical events such as war and terrorist attacks. Investors monitor consumer sentiment because it tends to have an impact on consumer spending over the long run (although not necessarily on a monthly basis.)

2009 Release Schedule

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