How does this affect the market?
A survey of consumer attitudes concerning both the present situation as well as expectations
regarding economic conditions conducted by the University of Michigan. Five hundred consumers
are surveyed each month. A preliminary survey is usually reported about the second Friday of
the month while a more complete survey is reported two weeks later. The level of consumer
sentiment is directly related to the strength of consumer spending.
The pattern in consumer attitudes and spending is often the foremost influence on stock and
bond markets. For stocks, strong economic growth translates to healthy corporate profits and
higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads
to inflation. Ideally, the economy walks that fine line between strong growth and excessive
(inflationary) growth. This balance was achieved through much of the nineties. For this reason
alone, investors in the stock and bond markets enjoyed huge gains during the bull market of
the 1990s. Consumer sentiment did shift down in tandem with the equity market between 2000
and 2002. Consumer spending uaccounts for more than two-thirds of the economy, so the markets
are always dying to know what consumers are up to and how they might behave in the near future.
The more confident consumers are about the economy and their own personal finances, the more
likely they are to spend. With this in mind, it's easy to see how this index of consumer attitudes
gives insight to the direction of the economy. Just note that changes in consumer sentiment
and retail sales don't move in tandem month by month.