U.S. consumer sentiment jumps unexpectedly

Almost every economic data point this week came in above expectations or indicated a positive for the economy -- and the Dow is set to record another weekly gain, amid an apparent push to the psychologically significant 10,000 level.

In line with the good news this week, the Reuters/University of Michigan Surveys of Consumers announced that its consumer sentiment index for September (preliminary) jumped to 70.2 from 65.7 in August, Reuters reported Friday. The index totaled 66.0 in July. The index hit a cycle low of 55.3 in November 2008; the index's record low of 51.7 was set in May 1980. Economists surveyed by Bloomberg News had expected the index to total 67.0 in September.Sensing an improving economy

"Confidence rebounded in early September as consumers increasingly expected the economy to improve despite their reluctant conclusion that their own financial situation would remain quite problematic for some time," the Reuters/University of Michigan Surveys of Consumers said in a statement, Reuters reported.

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

In general, economists expect the U.S. economy to record GDP growth by Q4, possibly as early as Q3, arguing that both the manufacturing and housing sectors have stabilized. Further, these economic bulls say factories and businesses have cut inventories so much, due to the pronounced recession, that they'll likely rebuild inventories, in order to avoid being "product short" when demand picks up, moving forward, and that replacement process will move the GDP needle in a positive direction.

Conversely, the economic bears argue the signs of recovery are not as strong. They say the U.S. retail sector and exports remain the wild cards, with the possibility of rising oil prices further hurting both U.S. disposable income and international commerce. An additional decline in disposable income would quickly cause to a retrenchment in consumer sentiment, they say, leading to only a modest increase in GDP in the second half of 2009.

The University of Michigan's Consumer Survey Center questions 500 households each month on their financial conditions and attitudes about the economy.

Economic Analysis: The survey indicates a nice rise in the initial September consumer sentiment tally, and one that should strengthen the bulls' case that the recovery has started and GDP growth is ahead. Further, as has been the case in previous recessions cycles, U.S. consumers' outlook toward the economy improved roughly in-line with the decline in the pace of job lay-offs. The American people know that the economy is not strong, but they also sense that the worst of the job lay-offs appear to be over, and the economy is, at minimum, stabilizing. Provided the job trend continues to move toward job growth, and no other economic hiccups intervene, consumer sentiment will continue to rise, moving forward.
Read Full Story

Can't get enough business news?

Sign up for Finance Report by AOL and get everything from retailer news to the latest IPOs delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.