Consumer-sentiment index rises to 70.8 in June: Reuters/U. of Michigan

Notch another pretty good week for the U.S. economy. Almost every economic data point came in above expectations and/or indicating a positive for the economy, and the stock market held its own.

The most recent positive data point: the Reuters/University of Michigan Surveys of Consumers said its consumer-sentiment index for June (final) increased to 70.8 from a revised 68.7 in May, Reuters reported Friday. The index hit a cycle low of 55.3 in November; the index's record low of 51.7 was set in May 1980.
Economists surveyed by Bloomberg News had expected the index to rise only to 69.7 in June.

Has consumer spending bottomed?

James O'Sullivan, a senior economist for UBS Securities (UBS) in Stamford, Connecticut, argues that the worst is over, regarding the recession's impact on U.S. consumer spending.

"Consumer spending has largely stabilized," O'Sullivan told Bloomberg News Friday. Stimulus-related measures "have contributed to increasing spending power," he said. "It sets the stage for more growth in consumption, and should help jump-start the economy. Ultimately, we need the labor market to kick in as well."

Investors need to understand consumer sentiment because it usually precedes consumer decisions to buy (rising sentiment) or hold-off purchases (falling sentiment). Historically, consumer spending has accounted for the bulk of U.S. GDP, around 60 percent to 65 percent.

Market/Economic Analysis

With the continued rise in consumer sentiment in June, one can detect modest improvement with respect to the consumer's outlook, and it will help the economy.

But investors should not confuse this with a surge of good sentiment, along the lines of the U.S. economy at the end of World War II. Keep in mind that wage growth continues to lag, due to job layoffs. We'll need to see job growth and accompanying wage gains over several quarters before we'll see an overwhelmingly positive attitude among consumers. Still, at least sentiment seems headed in the correct direction.
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