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Consumer sentiment weak

January 18, 2010 | "Barron’s Econoday"

Consumer spirits are not improving, offering a confirmation of weakness in the labor market and an explanation for weakness in consumer spending. Reuters/University of Michigan's consumer sentiment index was little changed in the mid-January reading, at 72.8 vs. December's final 72.5. The index has held in a very narrow and depressed range in recent months, from a low of 66.0 in mid-November to a high of 73.5 in final September. The expectations component, the report's leading component, has held in a similar range, falling 1.4 points in the latest reading to 67.5. This indicates wide pessimism over the economic outlook. The current conditions component, at 81.0, did improve but not substantially though the latest reading does push out the high end of the trend and potentially hints at marginal economic improvement for January. Inflation expectations are quiet though they did move slightly higher to 2.8 percent for both one year and five years out. Equities moved lower following the report.

Market Consensus Before Announcement
The Reuter's/University of Michigan's Consumer sentiment index showed little change at the month-end reading, at 72.5 versus 73.4 earlier in the month but was still sizably up from November's final reading of 67.4. Further improvement in January is doubtful even though jobless claims have been on a moderate downtrend. Firms still are not hiring and consumers are seeing noticeably higher prices at the gasoline pump.

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