U.S. Consumer Sentiment Improved Further

The University of Michigan's full month reading of October consumer sentiment rose 9.6% from September to 93.6 after a preliminary indication of an 8.1% rise. The gain exceeded Consensus expectations for a reading of 92.5 and was to the highest level in over a year.

During the last ten years there has been a 76% correlation between the level of consumer sentiment and the y/y change in real consumer spending and during those ten years sentiment has a 68% correlation with the change in nonfarm payrolls.

Expected inflation during the next year notched up to 3.7% from 3.5% in the preliminary report and from 3.6% in September. Since 1980 there has been an inverse 63% correlation between the level of sentiment and expected inflation during the next year. The five to ten year expected rate of inflation also rose m/m to 3.5% but that was down slightly from the preliminary read.

Expectations for the economy rose 8.4% m/m to the highest level since July of last year. Expected business conditions next year rose 7.4% (17.0% y/y) and over the next five years also rose 5.4% (34.7% y/y) to the highest since July 2005. The expected change in personal finances improved 7.4% (17.0% y/y).

The reading of current economic conditions added to the preliminary gain and surged 11.1% m/m, rising to the highest level since April. The current read of personal finances (22.9% y/y) rose to the best level since April and perceived buying conditions for large household goods recovered all of the prior month's decline and rose 15.1% y/y.

Consumers' opinion about gov't economic policy rose 6.1% (11.5% y/y) after three months having been unchanged. Twenty percent of respondents indicated that a good job was being done, the highest percentage in over a year. Thirty three percent felt that a poor job was being down, the lowest since April.

The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.

Consumption Amenities and City Crowdedness from the Federal Reserve Bank of Kansas City can be found here.

Targeting Inflation and the Fiscal Balance: What is the Optimal Policy Mix? also from the Federal Reserve Bank of Kansas City is available here.