Friday, October 28, 2011

USA Consumer Sentiment Rebounds to 3-Month High (Charts) "Widespread distrust of President & Congress"


Thomson Reuters/University of Michigan
USA Consumer Sentiment

Index of Consumer Sentiment, University of Michigan, Ann Arbor (October 28, 2011) Consumer confidence improved in October due to slightly more favorable prospects for the national economy. There was no improvement in how consumers viewed their financial prospects, however. This repeats a familiar pattern in recent years: improved prospects for the national economy support gains in overall confidence, but when those gains were not translated into an improved personal financial outlook, a subsequent retreat in confidence occurred. Much greater gains in confidence are required before another false start can be ruled out. Widespread distrust of the President and Congress will make a sustained and cumulative improvement more difficult to reach in the months ahead.

Commenting on the Survey Surveys of Consumers Chief Economist, Richard Curtin: "Consumers have always trusted the government to initiate policies that would foster renewed growth in jobs and incomes. The widespread distrust of the President, Congress, and the Federal Reserve is now an important cause of pessimism. The upcoming debates about spending cuts and tax hikes surrounding the budget resolution will increase uncertainty and cause consumers to become even more prudent spenders. Although a renewed downturn in the economy has a 50-50 chance of starting around the start of 2012, it is even more likely that growth will not be robust enough to restore consumer optimism about their job and income prospects."

Trend The Index of Consumer Sentiment increased +1.5 to a 3-month high. The short-term, intermediate-term, and the long-term trends continue downwards.

Cycle History The current October 2011 Index of Consumer Sentiment of 60.9 (final) and above the recent August 2011 low of 55.7. The Great Recession low was 55.3 in November 2008. Consumer sentiment reached a Post-Great Recession peak of 77.5 in February 2011, just before oil prices spiked up. February 2011 was also the peak of several other economic indicators for the USA. A Pre-Great Recession peak of 96.9 was reached in January 2007. In 2004 the index was greater than 100.

Consumer Sentiment Index by Month Below is a multi-year chart of the Reuters/University of Michigan Index of Consumer Sentiment by Month through the latest month reported.

Consumer Sentiment Index by Year Below is a multi-year chart of the Reuters/University of Michigan Index of Consumer Sentiment by Year adjusted through the latest month reported. The previous chart above, the Index of Consumer Sentiment, is rather like following the bouncing ball when charting human sentiment, confidence, mood, and outlook regarding the USA economy and their own individual prospects. Therefore, the chart below smooths out these short-term ups and downs and provides an intermediate-term perspective by averaging the months in each year. The Pre-Great Recession peak was in 2007 at 85.6. The Great Recession low was 2008 at 63.8, which illustrates the sustained, lower sentiment. The Post-Great Recession peak has been 2010 at 71.8. The 2011 average of 67.5 is through the latest month reported.

Commentary The Reuters/University of Michigan Index of Consumer Sentiment at 60.9 (final) in October 2011 is a 3-month high and above the recent August low of 55.7, which was the lowest since the Great Recession low of 55.3 in November 2008 and was also at 1980 recession levels. The current reading is at recession level, gloomy sentiment and continues at historically low levels. The index averaged 89 in the five years leading up to the Great Recession, that began Q3 2008 and ended in Q2 2009. Not only the short-term trend is decreasing, but even the intermediate-term, long-term, and ultra long-term trends are decreasing.

Stagnant Finances Expected Of note in the October 2011 report, "Three-quarters of all consumers expected stagnating finances in the October 2011 survey. Only one-in-five consumers expected their finances to improve during the year ahead. Just 38% expected income increases during the year ahead, the smallest proportion ever recorded in the long history of the surveys. Even with relatively low inflation, the majority of households expected declines in their inflation-adjusted incomes."

Confidence in Economic Policies at Record Lows Of note in the October 2011 report, "When asked to evaluate the economic policies of the government, 57% of all consumers judged current policies unfavorably, the highest proportion ever recorded. Just 7% of consumers judged current economic policies favorably in October. An additional question asked consumers about their confidence in the Federal Reserve. Less confidence in the Federal Reserve was reported by 61% in October, above the 49% reported in 2010 and 2009."

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Data Courtesy of Reuters/University of Michigan

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