Consumer Sentiment Rises to Highest Level Since June

Consumer Sentiment Rises to Highest Level Since June
Consumer Sentiment Rises to Highest Level Since June

The U.S. economy recorded another decent week as initial jobless claims and the trade deficit fell, and the consumer sentiment index rose to 69.3 in November -- its highest level since June -- up from a revised 67.7 in October.

The consensus of economists surveyed by Bloomberg had been for sentiment to rise to 69 in November. The index was at 68.2 in September, 68.9 in August, 67.8 in July, and 76 in June.

Christopher Low, chief economist for FTN Financial in New York, saw modest progress in the November sentiment data, but suggested people should keep the gains in perspective.

"It looks like an improvement in both -- current economic conditions are better; economic outlook is better. Unlike the Conference Board [Consumer Confidence index], which picked up a big increase in future expectations, there's a general improvement in November. It's not much, but it's enough to lift the index to the highest in a while," Low told Reuters. "We're at the high end of the range since July. ...So probably the best way to characterize this is a modest improvement, but still not enough to suggest that consumer spending is going to break out of its recent range."

Key Components Rise

The consumer expectations component of the consumer sentiment index rose to 62.7 in November from 61.9 in October, and 60.9 in September. However, the current conditions component plunged to 79.7 in November from 76.6 in October, and 79.6 in September.

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The one-year inflation outlook rose to 3% in November from 2.7% in October, and 2.2% in September.

Economists, business executives, and policy makers monitor consumer sentiment because, historically, consumer attitudes have been correlated with consumer decisions to spend. In general, rising consumer sentiment leads to increases in consumer spending, or the maintenance of a level of spending, while falling consumer sentiment predicts the reverse. And historically, consumer spending has accounted for 65% to 70% of U.S. GDP.

November's sentiment report falls in the "minor win" category for the bulls, but U.S. consumers remain far from certain that better days are ahead, either for their personal financial situations or the economy as a whole.

The November data does reflect a U.S. consumer who is encouraged by the recent modest good news: job growth in October and lower initial jobless claims. Still, the sentiment gain was small, and the index remains well below historic norms. The sentiment index was at 88.9 at the recession's start in December 2007, and the current low level is consistent with an economy that has a steep climb ahead to recover from the large losses in jobs and commercial activity caused by the 2007-2009 recession and the slow-growth recovery that has followed.