Big Surprise in Consumer Sentiment

All in all, the consumer sentiment report is real-time data from October, and it actually came with a significant upside surprise at 92.1. Bloomberg had the consensus estimate as being 89.5, with a range of 87.5 to 93.0 for October. Dow Jones also had its consensus estimate at 89.5 for the month.

What matters here is not just that the report was over 2.5 points higher than estimates. October’s preliminary reading was almost five full points higher than the September reading of 87.2, and it was back above the dip seen in August (at 91.9, versus 93.1 in July). This matters because it means that all that market volatility and crazy response that could have been seen when the news coming from China and the United States was very bad.

Another benefit here is that this report is just two months ahead of the Christmas push. Strong sentiment from consumers generally means strong consumer spending in the holiday season. Now we just have to wait and see if the preliminary report’s strength for October will hold true by the end of the month.

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Take a look at the components for an even cleaner read into what is going on:

• Current conditions were 106.7, exactly 5.5 points higher than the 101.2 reading from September and almost 8.5 points higher than the 98.3 reading from October of 2014.
• Consumer expectations were at 82.7, and while that is far worse than current conditions, it is better than the 78.2 reading from September and still better than the 79.6 reading from the October 2014 report.

This report should offer some lift to a view of real-time sentiment. Maybe that 1,000 point rally in the Dow Jones Industrial Average was noticed by Main Street after all, even if the report dismisses the market volatility’s real impact on consumers. The University of Michigan said:

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. 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. 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.

As a reminder, Michigan’s Consumer Survey Center questions only 500 households to come up with its monthly reporting for consumers’ financial conditions and attitude.

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