US Macro: UMCSI February 2017 The Consumer

US Macro: UMCSI

The UMCSI (University of Michigan Consumer Sentiment Index) it’s the most followed consumer index for the US. Economies are made of producers and consumers. When we want to study the supply side of the US economy we go to the ISM PMI and ISM NMI. But if we want to study the demand side we need to study the consumer, the most immediate way to do so is consumer indexes.

The UMCSI surveys consumers and makes two indexes, one of their current condition, and another one of their expectations. And with those two things they make a weighted average which is the UMCSI.

UMCSI 10032017.png

There are 4 things I’d like to point out today:

-Current Conditions: It’s nearly always higher than Expectation, that gives an idea of how we tend to think about the future as a “gloomy” place. Which from a behavioral finance point of view makes total sense.
-Trend: Since 2011 the trend is been upwards non-stop. Except for 2015 when both the index and the markets took a rest.
-Donal Trump: Before the election day it seemed like consumers were afraid of what could happen. But after the elections, they’ve been quite happy. Which again makes sense, we tend to think that things will be worse than they actually are, we over-react to things. But after the event, we realize “it’s not so bad after all”, so we get a “happy rush”.
-February data: On February we’ve had a decline on the indexes, which might mean that the “Trump Rally” is over, at least for the consumer.

To conclude, right now the consumer shows signs of been very happy, which tends to boost consumption and therefore we tend to have a stronger economy and better results for companies. However, the las data point, February, doesn’t look so good. It’s not enough to give up on the idea of a strong consumer confidence, but we should keep an eye on how it evolves.

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