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Consumer Sentiment Beats Estimates in October

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Oct. 19 2015, Published 11:37 p.m. ET

Consumer sentiment rose to 92.1 in October

According to the University of Michigan, the consumer sentiment final index rose to 92.1 in October against 87.2 in September. This was above the consensus median estimate of 89.0.

With a rise in consumer sentiment, the Consumer Discretionary Select Sector SPDR (XLY) and the First Trust Consumer Discretionary AlphaDEX ETF (FXD) were up 0.53% and 0.54%, respectively, as of October 16, 2015. The ETFs were also up 22.4% and 13.8%, respectively, from a year ago. Consumer stocks such as Foot Locker (FL) and NIKE (NKE) were up 28.9% and 46.8%, respectively, over the same period.

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Low inflation and better job prospects to rebound consumer sentiment

“The rebound in confidence signifies that consumers have concluded that the fears expressed on Wall Street did not extend to Main Street. Importantly, the renewed confidence did not simply represent a relief rally, but instead reflected renewed optimism,” said Surveys of Consumers chief economist, Richard Curtin, in a press release.

“Personal financial expectations rose to their highest level since 2007, as did consumers’ views toward purchases of durable goods. While consumers anticipate a continued economic expansion, many expected strong headwinds from falling commodity prices, weakened economies in China and elsewhere as well as continued stresses on European countries.”

Curtin continued, “Perhaps the most important finding is that low inflation and continued job growth have enabled consumers to adapt to a slower and more variable rate of economic growth by varying the pace of their spending without losing confidence that the expansion will continue. Overall, the data still indicate that consumption will expand at 2.9% during 2016.”

Consumer current condition index jumps to 106.7 and expectations to 82.7 in October

An increase in consumer sentiment signifies growing optimism among consumers about the business environment, personal earnings, and expenses. With an uptick in the index of current conditions and future expectations, households may indulge in spending on big-ticket items such as automobiles and housing.

Over the past month, automobile stocks such as Ford Motor Company (F) and General Motors Company (GM) have risen 5.9% and 4.7%, respectively, as of October 16, 2015. Housing stocks such as D.R. Horton (DHI) and PulteGroup (PHM) have fallen 6.7% and 9.2%, respectively, over the same period.

Low inflationary pressure in the economy and better job prospects are likely to boost consumer confidence going ahead. Low inflation is expected to increase real income, thus increasing consumer sentiment in the economy.

In the next article, let’s see how inflationary pressures are shaping up in the euro area.

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