January Consumer Mindset: Off to a Good Start

For the economy to sustain a recovery, there is no substitute for consumers who want to spend money. Yesterday I noted that although December sales figures were not quite up to forecasts, there was no apparent reason to conclude that this was because consumers were depressed over their economic futures. Today there is some empirical evidence to support that optimistic view.

The January report of The University of Michigan Consumer Sentiment Index (1964 = 100) was released this morning, showing that its Index increased to 74.0, which is a 4.1 gain over the December figure. Even better, the consensus forecast for this month was 71.5; economists may disagree over what is optimal, but it’s hard to argue that an increase above forecasts is not a good thing, especially considering where the economy has been lately.

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This survey (sample size ~ 500) measures how consumers view their own economic situations, and what they expect to happen near term in the macro. Questions posed are kept constant so that the Index is a monthly yardstick measure over many years. The Index’ graph over time reflects economic conditions and events, positively correlated to consumers’ attitudes about them.

The effect on consumers of the Congressional debt ceiling debacle of late 2011 presumably caused the Index dipped into the mid-50s range – the same levels seen during the worst of the recession in ‘08 and’09. The current figure of 74 is a very hopeful sign that memories of that event are quickly fading, and it also implies that the somewhat disappointing December sales numbers were due to factors other than consumer fears, which would be the reason that economists do not want to see. No one figure can confirm a recovery but this one wasn’t bad.

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To contact the reporter on this story: Mark Lawson at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com