In a bit of good news for the economy, Consumer Sentiment fell to 4-month lows in August. The drop wasn’t “good news”, per se, but because it wasn’t nearly as large as economists expected, Wall Street cheered it.
The index, jointly published by the University of Michigan and Reuters, measures how Americans feel about their situation today, and how they envision it six months in the future.
Since bottoming 5 months ago, consumer sentiment has added more than 10 points.
Rising Consumer Sentiment figures can foreshadow economic growth because confident consumers are more apt to spend money on big-ticket items including appliances, automobiles, and, of course, new homes.
The recent run of sentiment data is one more reason to believe a full economic recovery is underway.
That said, the Consumer Sentiment survey has its flaws.
For one, the survey’s sample set includes just 500 households nationwide and that’s not a true cross-section of America. And second, just because people feel more confident about their finances doesn’t always mean they’ll spend more money — sometimes, they choose to save.
For now, though, stronger-than-expected sentiment data should help propel both retail sales and home sales volume through the fall season, and may even create some inflationary pressure on the economy.
If these levels are sustained, expect that mortgage rates will rise.