Why is the University of Michigan Consumer Sentiment Index an important economical indicator?

Question

Why and how does the University of Michigan Consumer Sentiment Index report affect the indices, currencies and bonds? And how do you see it affecting these markets today?

Also, why and how does the Retail Sales report affect the indices, currencies and bonds? And how do you see it affecting these markets today?

What do you think are the affects of yesterdays Fed minutes release?

Answer 1

Consumer spending is the one key to any market economy. Consumers spend more when they are confident in their future.
An upgoing trend is therefore good for stocks.

Answer 2

October Mich Sentiment
Updated 13-Oct-06 10:44 ET

Key Factors
A strong gain follows the September rise to leave a 13% two month jump.
Lower fuel prices have provided the lift despite the slowing economy.
Leaves October at the highest level since July 2005 -- pre Gulf Coast hurricane and oil price concerns.
Present situation component shot 10% higher, expectations rose 7% after a 15% September gain.
1-year inflation expectations fell to 2.9%.
Big Picture
A strong 13% two month gain follows 6 declines over the prior 8 months as energy prices rather than the economy drive the index. Gasoline prices are the swing factor as strong labor conditions are being more than offset by high interest rates and global/domestic concerns. The U Mich survey is significantly smaller (500 phone calls) than the Conference Board's, includes a longer outlook (for expectations) as questions are focused on the household compared to the business heavy CB survey. A longer 2 year period shows a downward trend compared to the far brighter upward trend in the larger consumer confidence index. The index far better tracks the consumers' mood than spending habits better indicated through interest rates and income growth.

University of Michigan Consumer Sentiment Index
Importance (A-F): This release merits a B-.
Source: The University of Michigan.
Release Time: Preliminary: 10:00 ET on the second Friday of the month (data for current month); Final: 10:00 ET on the fourth Friday of the month (data for current month).

The Michigan index is almost identical to the Conference Board Consumer Confidence index, though there are two monthly releases, a preliminary and final reading. Like the Conference Board index, it has two subindexes - expectations and current conditions. The expectations index is a component of the Conference Board's Leading Indicators index.


Retail Sales
Key Factors
Gas station sales (read gasoline prices) provided the entire decline as they plunged -9.3%.
Ex-gas sales were 0.6%, ex-gas/autos were at a healthy 0.8%.
Gains in all other components outside of a small decline in food sales.
Durables: vehicles flat as furniture, electronics and building materials all showed gains.
Strong 1%+ gains in clothing, sporting goods, merchandise and department stores.
However, the weak bottom line suggests a weak finish to Q3 consumer spending.

Big Picture
Retail sales are slowing under the weight of higher interest rates as lower gas prices will provide a boost in the months ahead. Strong retail sales growth had been fueled by low interest rates, vehicle discounting and mortgage refinancing as those forces faded in late 2005. Despite the improved employment and income growth the Fed tightening and high energy prices have had a deflating effect on consumer spending and big ticket durable goods purchases particularly. Income growth provides support and is the best read on the future sales pace.

Retail Sales
Importance (A-F): This release merits an A-.
Source: The Census Bureau of the Department of Commerce.
Release Time: 8:30 ET around the 13th of the month (data for one month prior).
Raw Data Available At: http://www.census.gov/svsd/www/advtable.html.

The retail sales report is a measure of the total receipts of retail stores. The changes in retail sales are widely followed as the most timely indicator of broad consumer spending patterns. Retail sales are often viewed ex-autos, as auto sales can move sharply from month-to-month. It is also important to keep an eye on the gas and food components, where changes in sales are often a result of price changes rather than shifting consumer demand.

Retail sales can be quite volatile and the advance reports are subject to rather large revisions. Retail sales do not include spending on services, which makes up over half of total consumption. Total personal consumption is not available until the personal income and consumption reports are released, typically two weeks after retail sales.

Answer 3

US economy depend on consumer spending, it account for 70% of us GDP, that why it is really importtant how consmer feel for their wallets, it foretell a sign of economy in turning point. It has the ripple effect on spending (Gas price and Interest( two most components that can change the consumer mood wing that translate to spending) in turn change the whole equation of the economy.