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Last Update: 22-Dec-11 10:45 ET
Consumer Sentiment Beats Expectations
The University of Michigan Consumer Sentiment Index was revised up from 67.7 in the December preliminary reading to 69.9 in the final reading.
Consumer expectations strengthened in the final reading from 61.1 in the preliminary reading to 63.6. The current conditions index increased from 77.9 in the preliminary reading to 79.7 in the final. Both of these indices are at their highest point since June.
Typically, sentiment follows trends in employment, stock prices, oil prices, and media reports. The recent improvement in the labor sector -- as shown by the latest initial claims reading falling to its lowest level since April 2008 -- is the leading factor toward stronger consumer sentiment.
There is potential, however, for sentiment to turn lower in January. Congress has still not compromised on an extension of the payroll tax cut and long-term emergency unemployment benefits. The last time Congress could not compromise on something important for the economy -- the debt ceiling -- consumer sentiment plummeted to a level that was only slightly above the worst reading during the recession.
Even if sentiment weakens dramatically, this in itself should not affect overall consumption spending. Consumption growth relies on income growth. The ongoing improvement in the labor sector should drive consumption higher even if sentiment deteriorates.
Consumer expectations strengthened in the final reading from 61.1 in the preliminary reading to 63.6. The current conditions index increased from 77.9 in the preliminary reading to 79.7 in the final. Both of these indices are at their highest point since June.
Typically, sentiment follows trends in employment, stock prices, oil prices, and media reports. The recent improvement in the labor sector -- as shown by the latest initial claims reading falling to its lowest level since April 2008 -- is the leading factor toward stronger consumer sentiment.
There is potential, however, for sentiment to turn lower in January. Congress has still not compromised on an extension of the payroll tax cut and long-term emergency unemployment benefits. The last time Congress could not compromise on something important for the economy -- the debt ceiling -- consumer sentiment plummeted to a level that was only slightly above the worst reading during the recession.
Even if sentiment weakens dramatically, this in itself should not affect overall consumption spending. Consumption growth relies on income growth. The ongoing improvement in the labor sector should drive consumption higher even if sentiment deteriorates.
