Consumer Sentiment at Highest Level Since July 2007

Andrew Klips  |

It may be difficult for many to believe, but consumer sentiment is at more than five year highs, according to the Thomson Reuters/University of Michigan preliminary reading on the overall index on consumer sentiment.  The latest index reading registered 84.9, up from 82.6 in October, representing the highest level since July 2007 and fourth straight monthly increase.  In comparison, the sentiment barometer averaged 87 in the year before the latest recession began in December 2007.

Economists at Reuters were anticipating a reading of 83 for the month, while economists at MarketWatch were expecting Hurricane Sandy to negatively impact sentiment with a slide to 81.5.

The spark in consumer sentiment has been largely driven by the unemployment rate drop to below 8 percent in September, a housing market that has been steadily healing and cheaper prices at the gas pump.  The upcoming fiscal cliff and the markets trekking lower again this week, however, could prove reminders to consumers of troubles still facing the nation.

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The Reuters/UofM index, a measure of how consumers feel about their finances, business and buying conditions, is closely-watched because it helps economists get a sense of consumer spending, which constitutes about 70 percent of U.S. gross domestic product.

Meanwhile, the index of consumer expectations six months from now increased to 80.8 from 79 in October, also the highest reading since July 2007.

The retail industry is hoping that happy consumers will continue spending more money, even through they’re not making more, heading into the holiday season.  The Commerce Department said last Monday that consumer spending increased 0.8 percent in September, its biggest jump since February, after rising 0.5 percent in August.  The report also showed, however, that the savings rate of Americans dropped to 3.3 percent, the lowest level since November 2011, and salaries only increased by 0.3 percent.  Simply, people are spending more and saving less.

The markets have been receptive to the report, reversing course after trading lower at the opening bell.   The Dow Jones Industrial Index, S&P 500 and Nasdaq exchanges are all modestly ahead as the end of the morning session draws near.  The Dow is down about 2 percent on the week and has doffed-off points in four out of the last five weeks to the tune of nearly 800 points.

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