Consumer Sentiment Increasing Higher Than Expected

The University of Michigan recently reported its consumer sentiment survey numbers.  They were the second highest level since 2007, only below the January 2015 level.  This survey asks people questions about their current financial situation and how they feel it will change over the next twelve months, along with questions about their feelings on the business economy and whether they plan to make any big purchases soon.

Gas prices appear to be playing a large role in consumer sentiment.   Lower prices at the pump are translating into more money in the consumers’ wallet that can be used to pay down debt, save, or to buy more goods and services.  With savings rates at their highest level since 2012, it appears consumers haven’t been choosing to buy more.  They remain cautious about the future.  According to the survey, despite the additional savings, the consumers’ outlooks on their financial situation haven’t improved.   Consumers could be concerned that as quickly as gas prices fell, they can go back up and eliminate that extra cash in their wallet.  After a roller coaster of a housing market, housing prices also could continue to be a concern, the consumer still seems skeptical about their housing values.  Or there could be a permanent change in the way people spend and save after living through the great recession of 2007-2008.  

The correlation between the consumer surveys and the stock market is a chicken and an egg issue.  Do higher stock values cause a more positive consumer or does a positive consumer cause higher stock values?  Studies have shown it working both ways, and other studies have shown no correlation at all.  What is known is that the market climbs a wall of worry.  When everyone is feeling good about their situation, spending freely, and not saving, it is generally not a good time to start investing in stocks.  A healthy dose of concern and caution can be a good thing for those investing in stocks.  

All comments and suggestions are welcome.

Marisa A. Bradbury, CFA®, CFP®