Friday, May 1, 2009

Consumer Sentiment Gains a Good Sign

Good news out today on the Consumer Sentiment Index:

U.S. consumers felt more confident about the economy last month than at any time since the September failure of Lehman Brothers that pushed global banking to the brink of collapse, a survey showed on Friday.

  • The Reuters/University of Michigan Surveys of Consumers said its final index of confidence climbed to 65.1 in April from 57.3 in March. That was the highest since September 2008 and the biggest one-month increase since October 2006.
  • The April reading also marked the first yearly increase since July 2007. Economists polled by Reuters had expected a lower final reading of 61.9 for April.
  • Most of the gain can be tied to consumers' favorable assessment of U.S. President Barack Obama's stimulus spending, Curtin said. The survey found that 65 percent of consumers thought the stimulus would improve the national economy.
In normal times, I don't view consumer sentiment as a major indicator, but it is important right now. This recession has been full of shock news and the reporting of fear was strong. In many areas of our economy consumer spending basically stopped and savings rates surged. Easy to see why; people were afraid. My point isn't that the recession is over or that employment figures are going to get better: those are longer-term economic factors. But short term, like for the next couple of months, this is important. There are many consumers who can afford certain items and need them, but simply haven't purchased them. In my mind, there is going to be some pent up demand that will arise as long as consumer's fears subside. This will especially be so due to a couple of factors:

A) Many people feel they can get great deals on items like houses and cars, etc. Value is very important in consumer purchases in a market like this.
B) You can't get great rates on your savings. People are more likely to start investing money again (even if it is very conservatively) to find some capital gains.

Again; short-term indicator, but a positive.

A common phrase I like to cite in this type of situation: PERCEPTION IS REALITY.

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