• 30 mins Bejing's Sway In South China Sea Is Fading
  • 17 hours Saudis Eye Billions As Stocks Get Emerging Market Boost
  • 20 hours Airbnb In Acquisition Mode Ahead Of IPO
  • 23 hours Gold Hangs At $1,300 Ahead Of Fed Meeting
  • 1 day Champagne Sales Slow As European Economic Worries Grow Louder
  • 2 days Putin Signs “Digital Iron Curtain” Into Law
  • 2 days Russian Metals Magnate Sues U.S. Over Sanctions
  • 2 days Tesla Looks To Jump Into Indian Market
  • 2 days Global Banks Lay Groundwork To Re-Inflate Asset Prices
  • 3 days Homeowners Experiment With Risky New Investment Trend
  • 3 days U.S. Tech Stocks Look Increasingly Vulnerable
  • 3 days De Beers To Expand World’s Most Profitable Diamond Mine
  • 3 days Ford CEO Gets Raise After Massive Layoff Round
  • 4 days Germany’s Flirtation With Recession Could Cripple The Global Economy
  • 4 days Where To Look As Gold Miners Inch Higher
  • 5 days Google Faces Billions In Fines From European Regulators
  • 5 days The Energy Industry Has A Millennial Problem
  • 6 days Russian Banks Scramble For Sanction Loopholes
  • 6 days Gold ETFs Take A Hit After Four-Month Run
  • 7 days European Union Takes Aim At Ten New Tax Havens
Lending: The Good, Bad, And Ugly

Lending: The Good, Bad, And Ugly

Aristotle said, “The most hated…

The Chatroom Cartel Running Global Bond Markets

The Chatroom Cartel Running Global Bond Markets

Eight major banks have been…

  1. Home
  2. Markets
  3. Other

Sentiment as a Measure of Health of the Economy; Sentiment Theory vs. Practice

The University of Michigan consumer sentiment numbers came out today. Sentiment is down again this month, albeit slightly. Yet, confidence remains at a lofty level.

Economists claim high sentiment numbers are good news for retail spending. Economists also claim the high confidence numbers is a reflection on the overall health of the domestic economy.


Sentiment Theory vs. Practice

Let's take a look at that theory starting with the Bloomberg Consensus Estimate of the University of Michigan sentiment numbers.

Consumer sentiment is little changed so far this month, at 92.9 for the mid-month August reading vs 93.1 for final July. An early indication on August's consumer sector comes with the current conditions component which is nearly unchanged, at 107.1 vs July's 107.2. This hints at steady strength for consumer spending this month. The expectations component, which offers indications on the employment outlook, slipped 3 tenths to a still solid 83.8.

Inflation readings are also little changed and have yet to reflect the ongoing price collapse for oil, at 2.8 percent for 1-year expectations, which is unchanged, and 2.7 percent for 5-year expectations which is down 1 tenth.

Consumer confidence readings are down from their highs earlier in the year but are still very solid and a reminder that unemployment is low and that the domestic economy is healthy.

Definition

The University of Michigan's Consumer Survey Center questions 500 households each month on their financial conditions and attitudes about the economy. Consumer sentiment is directly related to the strength of consumer spending. Consumer confidence and consumer sentiment are two ways of talking about consumer attitudes. Among economic reports, consumer sentiment refers to the Michigan survey while consumer confidence refers to The Conference Board's survey. Preliminary estimates for a month are released at mid-month. Final estimates for a month are released near the end of the month.

Having taken a look at what economists claim, let's investigate the accuracy of those claims.


Consumer Sentiment vs. Retail Sales

Consumer Sentiment vs. Retail Sales
Larger Image

Sentiment has a tendency to rise due to population growth. So instead, let's focus on year-over-year changes in sentiment vs. year-over-year sales growth.


Consumer Sentiment vs. Retail Sales (Percent Growth from Year Ago)

Consumer Sentiment vs. Retail Sales (Percent Growth from Year Ago)
Larger Image


Consumer Sentiment as Measure of Sound Economy

Consumer Sentiment as Measure of Sound Economy
Larger Image


Proven Bullsheet

  1. The idea that spending follows consumer sentiment is proven silliness.
  2. The idea that confidence readings are a sign of a healthy economy are as ridiculous, if not even more ridiculous.

 

Back to homepage

Leave a comment

Leave a comment