US consumer sentiment

According to a report from the University of Michigan, the US Consumer Sentiment Index improved in January 2017. It stood at 98.5 in January 2017 compared to 98.2 in December 2016.

The January reading met the market’s expectation of 98.5. It was also higher than the preliminary reading of 98.1, and it was the highest reading since January 2004.

US Consumer Sentiment Rose: Is It Increasing Investor Confidence?

The Consumer Sentiment Index focuses on three questions:

  • What are consumers’ views of their own financial situations?
  • How do consumers view the general economy over the short term?
  • How do consumers view prospects for the economy over the long term?

Impact on the economy

The improvement in the US Consumer Sentiment Index is a positive sign for the economy. It indicates that the overall situation for consumers seems to be improving.

The rise in per-capita income is a welcome sign for the economy (SPXL) (IWM). The labor market has also shown improved figures in the past few months. An improvement in labor market conditions could speed up consumer spending in the economy (VFINX) (VOO) (SPY) in the near future.

The improvement in this index also indicates that consumers’ long-term view of the economy (IWF) (QQQ) is improving. Consumers seem optimistic about Donald Trump’s presidency. The Federal Reserve is also hinting at a gradual rate hike process in the next few years. It has announced that there will be at least three rate hikes in 2017.

Interest rate hikes are appropriate when the economy is on a strong path. According to the US Consumer Sentiment Index, the long-term path for the economy is improving, so it’s more likely the Fed will raise interest rates.

In the next part of this series, we’ll analyze the US 4Q16 GDP performance.

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