U.S. Consumer Sentiment Firms Again

The improved job market coupled with low prices seem to be buoying consumers' spirits. The mid-February reading of consumer sentiment from the University of Michigan rose to 75.1 and more-than recovered its January decline to an unrevised 74.2. The figure remained near its highest since June. The latest reading roughly equaled Consensus expectations for 75.0. During the last ten years there has been a 60% correlation between the level of sentiment and the three-month growth in real consumer spending.

The February index of current economic conditions rose 6.1% to its highest level since January 2008. The reading of current personal finances improved another 7.1% to its highest since March 2008. Also, the reading of buying conditions for large household goods, like appliances and furniture, more than recovered its January decline. The expectations component of consumer sentiment fell 2.5% and retraced its January increase. Upticks in expectations of personal finances over the next year and the reading of business conditions during the next five years were countered by a sharp decline in expectations for business conditions during the next year.

Expected price inflation during the next year increased further to 4.5%. As oil prices strengthened, the latest reading was the highest since September 2008. However, during the next five-to-ten years inflation is expected to average just 3.2%. Respondents' view of government policy, which may eventually influence economic expectations, recovered after earlier weakness and rose to its highest since August. A much-improved 18 percent of respondents thought that a good job was being done by government while a lessened 38% thought a poor job was being done.

The Reuters/University of Michigan survey data are not seasonally adjusted. The readings are based on telephone interviews with just over 300 households during early-to-mid November. The summary indexes are in Haver's USECON database with details in the proprietary UMSCA database.