The University of Michigan released its consumer sentiment index for January on Friday, indicating ongoing upbeat sentiment. While the overall index slipped down a few points, the data supports the viewpoint that consumer spending, which accounts for two-thirds of US economic activity, will continue.
Key Takeaways
- US consumer dipped from a 7-month high of 99.3 to 99.1, remaining in upbeat territory.
- Current conditions rose slightly to 115.8 while expectations dipped to 88.3.
- The report falls in line with the belief that the US economy can support another year of sustained expansion.
The drop in sentiment was the first since August. While this could point to more moderate growth at the beginning of 2020, all signs point to healthy consumer spending throughout the year. While business investment remains sluggish, the labor market and consumer spending may yet bolster the economy for a 12th year of record-breaking economic expansion.
Survey respondents pointed to predicted inflation levels in 5 – 10 years as 2.5%, gaining from the record low of 2.2% last month. This measure is taken into account by Federal Reserve policymakers when making decisions on interest rates. It’s believed that the Fed will maintain the current benchmark rate of interest throughout 2019 after implementing three rate cuts last year, the first in a decade.
Univ of Michigan consumer sentiment is out at 99.1 vs an expected 99.3. It remains in its long-term range. Inflation expectations are on the rise at 2.5% vs prior 2.3%. It will be something that we will monitor closely. Still believe the US consumer is relatively strong. pic.twitter.com/DChjvjrM2E
— Christopher Nicolas Dembik (@Dembik_Chris) January 17, 2020
The Fed’s monetary easing measures were put in place to combat recessionary pressures such as tame inflation, the US/China trade war, and the global economic slowdown. However, the trade war has tentatively begun to lose steam with a preliminary agreement reached on Wednesday.
China is set to buy $80 billion in US goods in exchange for reductions in tariffs, which may alleviate current softness in factory activity and business investment in the US. Tame inflation appears to be less likely according to the consumer sentiment index, and with a healthy labor and housing market, the overall economic outlook for the US is relatively positive.
Market Reaction
Gold prices have risen since the release of the report. Spot gold last traded at $1,555.76/oz, up 0.24% with a high of $1,560.34/oz and a low of $1,549.62/oz. The consumer sentiment report was released shortly after reports on industrial production, which declined last month, and housing starts, which hit a 13-year high.
With mixed financial data at play in the precious metals markets, gold has held onto upward momentum seen earlier in the day, retaining its appeal to traders and investors during the uncertainty of today’s session.
Gold Price Chart
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