Strong Recovery Seen in Consumer Sentiment for November

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The University of Michigan has released its preliminary view of consumer sentiment for the month of November. While this is a very small sampling that is not always universally accurate, investors, traders and economists love to dwell on this report because it is really the first real look at live data for each month. Other reports in the first half of each month tend to be about the prior month or two months ago.

The index of consumer sentiment rose to 91.6 in November, up from 87.2 in October. Dow Jones was calling for just a 88.0 reading, and Bloomberg for 87.1. Note that the reading from November of 2015 was 91.3. In short, this was marginally better than a year ago but much better than the prior month and much better than expectations.

As far as the breakdown of the report, the current conditions rose modestly and the expectations components rose handily. The index of Current Economic Conditions rose to 105.9 in November, versus 103.2 in October and 104.3 in November of 2015. The Index of Consumer Expectations came in at 82.5 for this November, versus 76.8 in October and 82.9 a year ago.

Before getting too excited here, note that the University of Michigan confirmed what we warned about last weekend. That is that the data were collected before the election, rather than including the market reaction and taking the theme of each person’s post-election opinion over who won and lost.

This reading was all-in the highest level since mid-2016, and it rose above the 2016 average of 91.1. Friday’s report on sentiment included the following commentary:

The recent gain in sentiment was driven by an improved outlook for the economy. The most striking finding in early November was that both near and long-term inflation expectations jumped to 2.7% from last month’s record matching lows of 2.4%. These increases must be replicated before they can be taken to indicate a troublesome development; thus far, the data has simply repeated the March 2016 peaks. Nonetheless, it may be viewed as added justification for next month’s expected interest rate hike. The expected small increase in interest rates had little impact on favorable buying attitudes, and still supports a 2.5% increase in real consumer spending during 2017.

The University of Michigan surveys 500 households each month regarding their financial outlook and about their attitudes about the economy. Economists also need to consider that this data will be given an update from a larger pool and with more data for the final reading for November.

Whether or not we prefer to see a larger sampling for more accurate sentiment readings, this does at least bode well for how consumers are feeling going into the holidays.