Consumer Sentiment Dips in February

This was a week investors would probably rather forget. True, the Dow held on to the psychologically significant 10,000 level, but new-home sales, existing-home sales and durable goods orders data all underperformed. Joining the parade, the consumer sentiment index dipped -- unexpectedly edging about one point lower to 73.6 in February, the Reuters/University of Michigan Surveys of Consumers said.

Economists surveyed by Bloomberg News had expected this measure to decline slightly less, to 73.7, following January's 74.7 reading. The index was at 72.5 in December, 66 in November and 70.6 in October. It hit a cycle low of 55.3 in November 2008 (its record low of 51.7 came in May 1980).

The forward-looking index of consumer expectations fell to 68.4 in February from 70.1 in January, while the current conditions index rose to 81.8 in February from 81.1 in January, Reuters reported. Expectations for inflation one year out fell to 2.7% in February from 2.8% in January, and the five- to 10-year inflation expectations fell to 2.7% in February from 2.9% in January.

Richard Curtin, director of the surveys, said consumers' patience with the slow pace of economic improvement is being stretched thin. "Consumers have been getting more impatient with the slow progress of the stimulus program, and confidence in the Obama administration's economic policies has begun to wane," Curtin said in a statement.

Separately, the Chicago Purchasing Managers Index rose to 62.6 in February from 61.5 in January, Briefing.com reported Friday. The 62.6 reading was above the Bloomberg News 60 consensus estimate.

Waiting for the Rebound to Trickle Down

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

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

The bottom line regarding consumer sentiment? The nearly year-long uptrend remains intact, but at this juncture its pulse is weak: Consumers sense that economic conditions are improving for companies, but they're not feeling any more confidence in their personal situations. Until that improves, consumer spending will remain constrained. More than likely, consumers will have to see some sign of job growth before becoming more confident about their financial conditions and the nation's longer-term prospects.