Consumer Sentiment: A Mild Rebound in Late April, but Still Below March


U.S. GDP climbed 3.2% in the first quarter and the consumer sentiment index rose to 72.2 in late April, though still trailing the previous month, Reuters reported Friday, capping off a mixed week for the U.S. economy during which the Greek debt crisis continued to weigh on investors.

Economists surveyed
by Bloomberg News had expected the Reuters/University of Michigan consumer sentiment index to rise to 71.0 in April (final) from 69.5 in April (preliminary). The index was at 73.6 in March and February, and at 74.4 in January. The index hit a cycle low of 55.3 in November 2008, and the index's record low of 51.7 was set in May 1980.

The index of consumer expectations fell to 66.5 in April from 67.9 in March, while the current conditions index dipped to 81.0 from 82.4. Meanwhile, the one-year inflation expectations index rose to 2.9 in April from 2.7% in March, but the five-year index remained unchanged at 2.7%.

A Small Rebound Late in the Month

Richard Curtin, director of the surveys, said consumers' confidence in the Obama administration's economic policies remained low, but overall confidence did show signs of life in late April, Reuters reported.

Investors should 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 (65% to 70%) 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.

How should investors interpret the week's events? The optimists will point to better-than-expected first quarter earnings and a solid 3.2% increase in U.S. GDP as further confirmation of a strengthening economic expansion.

Conversely, the pessimists will point to the unresolved Greek debt crisis -- and the possibility that additional European Union nations will need fiscal stabilization packages -- as a major credit market headwind for global economies in the immediate quarters ahead.

One point the optimists and pessimists can agree on, however, is that along with healthy credit markets, adequate job growth is required to transform the U.S. recovery into a self-sustaining expansion, which underscores the importance of the April jobs report, to be released by the U.S. Labor Department on Friday, May 7.