UoM Consumer Sentiment Index To Ease In April

Overall Trend Remains to the Upside Underpinning Optimism

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The University of Michigan will be releasing its monthly consumer sentiment index today. The median consensus points to a modest dip in April. Overall, the data is likely to underline the fact that optimism among the households remains relatively healthy.

This would be important as it comes amid apprehensions of a slowdown and global trade uncertainty.

In March, consumer sentiment rose to 98.4. This was a rebound in the consumer sentiment index which fell to 93.8 in February. Overall, the data for March indicates that consumer sentiment is well above the average of 97.2.

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UoM Consumer Sentiment Survey for March Recap

The data for March suggests that the middle and lower income households saw a better increase when comparing to the data from February. Income gains, however, remain more evident in upper-income households. Interestingly, the last time that there was this huge proportion was the gains seen in 1966.

Consumer Sentiment Index
University of Michigan Consumer Sentiment Index, March 2019

Income gains were also accompanied by lower inflation expectations for the year ahead. This led to rising real income expectations among the households. All income groups in the University of Michigan said that the growth prospects were more favorable for the overall economy.

Some of this optimism also comes with the Fed’s forward guidance. In March, the Federal Reserve Bank said that it would leave interest rates unchanged for the rest of the year. This has brought a sense of certainty among the households.

Earlier, there were concerns that rising interest rates would have widespread repercussions in the economy. In the latter part of last year, data from the housing markets revealed that buyers found it more expensive to buy homes.

This came as inflation partly surged during the middle of last year. Expectations about rising inflation also dented the sentiment as it would lead to the Fed hiking interest rates even more.

In March, the UoM’s survey warned of the effects of the Mueller report, which didn’t seem to have an impact on the data back then. But the survey report said that the full effect of the Mueller investigation could be seen in the data for April.

Ongoing developments on this part show that several Republicans are against the idea of making the investigations public. This could potentially impact consumer sentiment in either direction.

The main takeaway from the March consumer sentiment report was that while households expect growth to slow, the prospects of a recession remain farfetched for the moment.

Consumer Sentiment to Dip Slightly in April

The forecasts for the report in April suggest that consumer sentiment would ease to 98.1. The decline would be in line with the cautionary note given in the previous month. But the decline to 98.1 in April isn’t much compared to the month before.

Household incomes could be maintaining the trends despite wages slightly falling during March. Still, with inflation being tame, we do not expect to see a dramatic decline. This partly underpins the overall view of the report for April.

The lagging effects of the recent job layoffs in March could, however, spring a surprise. So far, various reports indicate that the labor market continues to underpin growth.

The consumer sentiment index has been steadily rising over the past few years and is now relatively close to the highs from 2003. The data could once again soothe concerns among investors about a potential recession around the corner.

However, the numbers will gain prominence over the next few months. With the Fed standing pat on interest rates, the risks of a decline in the consumer sentiment index are much lower.

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