What US Consumer Sentiment Indicates for the Economy
US consumer sentiment
The University of Michigan Consumer Sentiment Index, released on May 12, 2017, rose to 97.7 from 97.0 in April 2017. The May reading beat the preliminary market expectation of 97.0.
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The Consumer Sentiment Index focuses on the following three areas:
- consumers’ views of their own financial situations
- how consumers view the general economy over the short term
- how consumers view prospects for the economy over the long term
Impact on the economy
Improvement in consumer sentiment is a positive sign for the economy. In the previous part of this series, we saw that US retail sales didn’t meet market expectations in April 2017, which is affecting consumer confidence. Consumers’ views on long-term economic prospects are strong. They’re expecting policy reforms, tax reforms, and a higher fiscal stimulus in the long term. However, in the short term, confidence is lower.
The rise in per-capita income was a welcome sign for the US economy (SPXL) (IWM). The labor market has also shown improvement in the past few months. Improvements in the labor market could speed up consumer spending (VFINX) (VOO) (SPY) in the near future. But in March 2017, the performance of the labor market fell. An overall falling sentiment in March also impacted the market rally that month.
In the next part of this series, we’ll see which indicators investors should look at.