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Tomorrow we get the University of Michigan consumer sentiment reading for February and recent indicators, such as the ABC consumer comfort index, suggest that the consumer may be turning more UNeasy. 

Last month, the Thomson Reuters/University of Michigan final index of consumer sentiment decreased to 74.2 from 74.5 in December.  The median forecast calls for a reading of 73.3, up from a preliminary figure of 72.7 issued earlier this month.  As it stands now the February preliminary reading is for an increase from 75.0 up from 74.2, according to Bloomberg.  In my view, a reading below 74.0 would not be surprising.

The reason for our caution is premised on the following factors:

  1. Political unrest in Egypt is playing a role in consumers’ heightened concerns for political and national security issues.
  2. While the holidays are in the rear-view mirror, the holiday bills are not.
  3. On Wednesday, the ABC consumer comfort index declined from to -46 from -41.  Significantly higher gas prices were cited as the primary culprit.
  4. With average pump prices well over $3.00 per gallon, drivers are increasingly absorbing higher fuel expenses by cutting costs of other household expenses.
  5. Despite the Federal Reserve’s focus on the stock market, Main Street is still focused on making ends meet.
  6. The jobs picture is improving but needs to improve faster.  Also, with regard to the longer term picture, the prospect of higher interest rates does not bode well for job growth.
  7. The Small Business Optimism index showed an improvement, but the hesitancy to hire remains evident.
  8. The Overhand of Austerity is looming large on the American Consumer.  As more and more column inches are dedicated to the implications of cutbacks and job growth, I expect this to drag on sentiment.

At this juncture, continuing improvement in consumer confidence is critical.  Much of the inflation in input costs is expected to be passed on to consumers; if the consumer is not prepared to take on this burden, the outcome for corporate profits will likely be dire.

Howard Penney

Managing Director

 CONSUMER UNREST - univ mich sentiment jan