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Economy

Economic Data (USA)

Wednesday, November 21, 2018

Consumer Sentiment: Final Result for November 2018

The University of Michigan's Index of Consumer Sentiment (ICS) - Final Result for November  2018 was released today:

Predicted: 98.3
Actual: 97.5

  • Change from Previous Month: -1.116% (-1.1 points)
  • Change from 12 Months Previous: -1.015% (-1.0 point)

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Previous Month's Final ICS Reading: 98.6

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From today's report:


"...Consumer sentiment has remained largely unchanged at very favorable levels during 2018, with the November reading nearly at the center of the eleven month range from 95.7 to 101.4. Although the data recorded a decline of 2.8 Index points following the election, the drop was related more to income than political party: among those with incomes in the bottom third, the Sentiment Index rose by 10.4 points and fell by 6.6 points among those in the top third of the income distribution. In contrast, the Sentiment Index remained unchanged among Democrats and Republicans prior to and following the election.

Consumers' interest rate expectations have always traced the outlines of economic cycles. As expansions lengthen, the number of consumers who expect interest rate increases gradually increases. After some threshold is reached, however, consumers in large numbers abruptly anticipate future declines in interest rates. Sales declines are then accelerated not only by falling job and income prospects but also from the expectation of falling interest rates in the future. While there is no reason to anticipate a sudden change in interest rate expectations in the next few months, it is still an important task for the Fed to avoid hitting the threshold that causes widespread postponement of purchases..."

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The ICS is derived from the following five survey questions:


  1. "We are interested in how people are getting along financially these days. Would you say that you (and your family living there) are better off or worse off financially than you were a year ago?"


  2. "Now looking ahead, do you think that a year from now you (and your family living there) will be better off financially, or worse off, or just about the same as now?"


  3. "Now turning to business conditions in the country as a whole, do you think that during the next twelve months we'll have good times financially, or bad times, or what?"


  4. "Looking ahead, which would you say is more likely: that in the country as a whole we'll have continuous good times during the next five years or so, or that we will have periods of widespread unemployment or depression, or what?"


  5. "About the big things people buy for their homes, such as furniture, a refrigerator, stove, television, and things like that. Generally speaking, do you think now is a good or bad time for people to buy major household items?"

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The ICS uses a 1966 baseline, i.e. for 1966, the ICS = 100. So any number that is below the 1966 baseline of 100 means that the folks who were polled recently aren't as optimistic about the U.S. economy as the sample that was polled back in 1966.

The ICS is similar to the Consumer Confidence Index in that they both measure consumer attitudes and offer valuable insight into consumer spending.

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The "predicted" figure is what economists were expecting, while the "actual" is the true or real figure.

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