Consumer Sentiment Research Notes

by Jim Baird on January 13, 2012

Sentiment rises more than expected on improved economic data

The University of Michigan Index of Consumer Sentiment increased to 74.0, a result that was better than anticipated and the best reading since last May.

Consumer sentiment continues to rebound as recent economic data has improved.  However, it will be critical for economic data to continue to improve in the months ahead for this sense of growing optimism to be sustained. 

The sense that the employment situation in particular is improving is big for consumers.  It’s obviously a positive if you’re looking for a job, but a stronger jobs market also helps to mitigate the anxiety for individuals that are concerned about losing their job.  With that fear mitigated, consumers feel a bit more comfortable opening their wallets.

As confidence continues to improve, it should support continued advances in consumer spending at least to a point.  Nonetheless, continued momentum in job creation that ultimately translates to much better wage growth will be a necessary ingredient to a longer-term self-sustaining resurgence in consumer spending. 

In the meantime, better spending can provide a boost, but at the expense of household savings and debt reduction.

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