Econoday Economic Report: Consumer Sentiment June 12, 2009

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Consumer Sentiment

Released On 6/12/2009 9:55:00 AM For June, 2009

	Prior	Consensus	Consensus Range	Actual
Sentiment Index - Level	68.7	70.0	65.0 to 71.0	69.0

Highlights
The mid-month look at consumer sentiment shows only little improvement and some concerns over inflation. The Reuters/University of Michigan index edged only 3 tenths higher to 69.0. Expectations, which have been driving consumer measurements sharply higher for the last two months, actually fell back in this report, down 4 points to 65.4 for the first decline since February. But now the good news, the assessment of current conditions, which has been flat, jumped nearly 7 points to 74.5. When coming out of recessions, expectations typically lead current conditions as consumers look ahead to better times.

Inflation also typically appears when coming out of recessions. Both 1-year and 5-year inflation expectations rose, each now at 3.1 percent with the 1-year reading up 3 tenths and the 5-year up 2 tenths. This certainly reflects higher prices at the gas pump, but the increases shouldn't be dismissed since higher oil prices reflect expectations for rising demand and also, given government monetary stimulus, concern about dollar-based inflation.

Some may have been hoping for more acceleration in this report, and the dip in expectations offers a hint that the recovery may not be a robust one. But that may be jumping to conclusions. After all, the jobs market, though improving, is still very tough with a record number of unemployed on jobless benefits. The Conference Board's report at month-end includes closely watched details on the assessment of the labor market. Stocks fell slightly in immediate reaction to today's report with demand rising slightly for the safety of Treasuries.

Market Consensus before announcement
The Reuter's/University of Michigan's Consumer sentiment index jumped sharply in May to 68.7, up more than 3-1/2 points from April. Improvement was evenly split between the report's two components: the assessment of current conditions and the assessment of future conditions. Looking ahead, an easing contraction in jobless claims and gains in the stock market could keep sentiment on the upswing. But higher gasoline prices could dampen consumer spirits.

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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