April Showers Bring Unexpected Decline in Consumer Sentiment

If the economic readings and the stock market have been getting better in recent weeks, then some of us might wonder why consumer sentiment dipped in April from March. The University of Michigan Surveys of Consumers released its preliminary reading for April’s consumer sentiment, with the index falling to 89.7 on the headline data. This is down from March’s reading of 91.0 and is far lower than a year ago’s reading of 95.9.

Economists expected consumer sentiment’s index reading to hit 92 in April, according to Thomson Reuters and Dow Jones. Bloomberg posted a consensus estimate of 91.8, with the Econoday range being 90.0 to 94.2.

In short, the sentiment reading for April was worse than all economists were calling for.

Where things are softening is in the expectations rather than the current trends. The Current Economic Conditions came in at 105.4, down from 105.6 in March and down from 107.0 a year ago. The Index of Consumer Expectations fell to 79.6 in April, down from 81.5 in March and even worse when compared to 88.8 a year earlier.
[nativounit]
Friday’s economic report was described as being quite small. Unfortunately, it also marked the fourth monthly decline. Another view that was expressed is that the slowdown does not forecast a recession.

Surveys of Consumers chief economist, Richard Curtin, said:

Consumer confidence continued its slow overall decline in early April, marking the fourth consecutive monthly decline. To be sure, the sizes of the recent losses have been quite small, with the Sentiment Index falling just 2.9 Index-points since December 2015, although it was down 6.2 Index-points from a year ago and 8.4 points below the peak in January 2015. None of these declines indicate an impending recession, although concerns have risen about the resilience of consumers in the months ahead. Consumers reported a slowdown in expected wage gains, weakening inflation-adjusted income expectations, and growing concerns that slowing economic growth would reduce the pace of job creation. These apprehensions should ease as the economy rebounds from its dismal start in the first quarter of 2016. Overall, the data now indicate that inflation-adjusted personal consumption expenditures will grow by 2.5% in 2016.

As a reminder, Goldman Sachs recently predicted that good economic news would likely be bad for stocks. Does that mean that we are back in a climate where bad economic news is good for stocks? Stay tuned.