Consumer Sentiment Dips, But Trend Line Remains Positive YoY

The Reuters/UM’s composite Index of Consumer Sentiment came in at a finalized 91.3 for February, down from a 96.9 reading in January that was essentially a spike from solid stock market gains in the 4^th quarter of 2006.  Feb’s reading on a year-over-year basis was up from 86.7.

The current conditions index fell to 106.7 from 111.3 in January, while the more important expectations series fell to 81.5 from 87.6 last month.   

The thing to remember about subjective studies like this simple – one month a trend does not make.  Most economists will wait for 4-5 months of similar results before attributing any long-term economic shift based on it, and we are still averaging well above the levels seen across 2006.  This week’s market activity will not be reflected in the results due to survey timing, but you can be sure there will be some headwinds to get past on next month’s report, as stock prices tend to get reflected here.  March of 2006 came in at 88.9, and we could slide in below that next month unless the indexes go on a tear for the next couple of weeks. 

In reading the remarks from the survey’s director, it appears that the divide between the rich and the poor is widening (as if we needed more evidence):

“The economic experiences of upper and lower income households have diverged to a considerable degree, with income gains reported by twice as many upper income households, and with stressed family budgets being reported twice as frequently among lower income households”…

Also highlighted in the remarks were concerns over sub-prime mortgages and weak conditions in the U.S. Midwest due to manufacturing losses. 

All in all, although the report came in slightly below expectations, this wildly volatile indicator wasn’t far enough off to negatively impact the markets too terribly much.  The Conference Board’s Consumer Confidence, released earlier in the week, came in at the highest levels since August of 2001.  Results are mixed, and we’ll need to see a few more months of coincident results from the two surveys before predicting any long-term changes in outlook or consumer spending. 

Ryan Barnes