Wednesday, April 22, 2009

Consumer Sentiment Gains Ground

I never used to put much "stock" in polls or consumer sentiment numbers; it seemed to me that too often too many people said one thing and did another. However, as I've gotten older, I've changed my mind a bit on the reliability of consumer sentiment numbers as they relate to overall mood.

The ABC News weekly consumer sentiment index matched a six-month high in the week ended Sunday, rising 4 points to -47. All three subcomponents increased: The index on personal finances increased 4 points to -4, the index on the purchasing climate increased 6 points to -50, and the index on perceptions about the state of the economy increased 4 points to -96.

The index on the state of the economy obviously has the most to gain and will likely increase in the current quarter in line with improvements in the news flow regarding the economy, which will be driven by a slowing in the rate of decline in industrial output. Expectations about future economic growth are apt to change more quickly than assessments about the present, chiefly because they are based more on perception than on reality.

Gains on the whole for ABC's consumer sentiment index are probably being driven by recent improvements in the trajectory of some economic data, as well as the rebound in stock market. Keep in mind that the three-month change in equities tends to correlate well with consumer spending, which suggests the first quarter's stabilization in retail sales will be sustained in the current quarter.

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