Consumer Sentiment Research Notes

by Jim Baird on September 14, 2012

Index increases sharply in September, easily beating expectations

The University of Michigan Consumer Survey, a measure of the overall optimism of U.S. consumers regarding the state of the economy, spiked to 79.2 in September, well above the August result of 74.3.

The preliminary September reading provided the second consecutive unexpectedly strong advance, easily beating the consensus expectation of 74.

The improvement in the mood may be attributed to a delayed reaction from better job market numbers in June and July and the decline in the unemployment rate in August, with consumers not yet fully absorbing or potentially shrugging off what was overall a disappointing August employment report. Moreover, recent gains in stocks and evidence that the housing market may be finding its footing have been positive developments that are helping consumers to breathe a little easier.

Job creation slowed in August and remains lackluster overall; the drop in the jobless rate was attributable instead to workers exiting the workforce.  That paints a very different picture than a desirable decline in the unemployment rate driven by strong job creation.

Real average hourly earnings remain poor, having fallen 0.7% in August.  With that decline, average hourly earnings are exactly where they were one year ago.

A more robust pace of job creation and better growth in personal income remains will be needed to continue to propel consumer spirits higher and provide a catalyst for a sustained strengthening in consumer spending. 

It remains to be seen whether yesterday’s Fed announcement will provide the domestic economy with a much needed spark, although investors have already reacted positively.  Rising levels of Consumer Sentiment are a positive short-term sign, but support for the consumer sector in the form of improvement in job and income conditions will be critical to a sustained surge in the economy.

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