Instant View: Consumer sentiment slumps in April

NEW YORK (BestGrowthStock) – U.S. consumer sentiment took a surprise negative turn in early April due to a persistently grim outlook on income and jobs, a private survey released on Friday showed.

KEY POINTS: * A slip in economic expectations to its lowest in a year likely stemmed from consumers hearing negative information on government programs and a perception that the recovery is too slow, according to Thomson Reuters/University of Michigan’s Surveys of Consumers. * Consumer sentiment is seen as a proxy for consumer spending, which fuels about 70 percent of the U.S. economy. * The surveys’ overall index on consumer sentiments slipped to 69.5 in early April — the lowest in five months. This was below the 73.6 reading seen at the end of March and the 75.0 median forecast of analysts polled by Reuters.

COMMENTS:

LOU BRIEN, MARKET STRATEGIST, DRW TRADING GROUP, CHICAGO:

“There’s a firmer tone in bonds but it didn’t have as much of an effect as I thought it might.

“It’s only the second sub-70 reading on University of Michigan in the last eight months and is the weakest reading since November.

“The economic outlook, you have to go back to March of last year to find one that’s lower. I would say that it’s due to the fact that we’ve lost about 4.5 million jobs… The continued troubles in the labor market to me is the bottom line on this.

“The point is that aside from two or three of the months over the last couple of years, the labor market is quite week. It’s dug itself a big hole and the average duration for unemployment is at a record.”

STEVEN WOOD, CHIEF ECONOMIST, INSIGHT ECONOMICS, DANVILLE, CALIFORNIA:

“Consumer sentiment fell in early April and is only marginally above its very depressed year ago level. However, on a trend basis, sentiment has been improving since March 2009, albeit irregularly.

“Nevertheless, sentiment is only just above its average recessionary level and still well below is average expansionary reading. The economic contraction may be over and consumers may be spending again but households say they are still worried about weak labor markets, high foreclosures, expensive energy, and tight credit conditions.”

JOSEPH BATTIPAGLIA, MARKET STRATEGIST, STIFEL NICOLAUS, YARDLEY, PENNSYLVANIA:

“Sentiment isn’t surprising. The center of attention is that the job market is still slow to recover and wage growth is negligible. There’s also a lot of talk about taxes this month, so the mood is pretty sour. However, they did express themselves positively in terms of retail sales this month, but you can only get them to buy stuff if you put deep incentives in place, with Wal-Mart (WMT.N: ) cutting prices and every possible government agency including the Fed helping prop up the housing market.

“Investors had built way too much into stock prices. We’ve had something like an 11 percent gain since the last earnings season, and then an uninterrupted six-week rally. We’re reaching a point where we look into the future and wonder if we can sustain GDP growth that’s north of 3 percent. We don’t know what that means for ongoing profitability, and that question is what is occupying the market.”

JIM O’SULLIVAN, CHIEF ECONOMIST, MF GLOBAL, NEW YORK:

“It’s at odds with other consumer surveys. The retail sales continue to show strength as well so these figures are quite surprising. The overall consumer sector is still improving. I’m inclined to think this is an outlier.

“Broadly, the data this week show above-trend growth and below-trend inflation.

“For now, the Fed is clearly on hold. The focus will be more on wording rather action. Right now they are sounding cautious. They are worried about sounding hawkish too soon.”

VASSILI SEREBRIAKOV, SENIOR CURRENCY STRATEGIST, WELLS FARGO, NEW YORK:

“U.S. consumers are recovering but it’s still a fairly gradual process. Overall, though, it looks like we’re in something of a sweet spot. Growth is picking up, but not too strongly as to trigger a Fed move. The inflation numbers are subdued, so it’s really steady as she goes. The dollar is stronger, but that’s primarily because of trouble elsewhere. I think we’re going to have a hard time linking dollar moves to economic data these days.”

PIERRE ELLIS, SENIOR ECONOMIST, DECISION ECONOMICS, NEW YORK:

“It’s clearly a troubling setback in what had seemed to be an improving consumer environment. But as always with these numbers, the volatility can exceed the actual change in confidence. It seems to be driven by a deterioration in expectations which is hard to square with the general environment. The survey is based on relatively small sample of households so that can create volatility. But the survey hasn’t shown much volatility lately so this shift is troubling. But, as always, it’s what consumers actually do that matters and so far that looks better than expected.

“There are two sets of consumers: those who are working and those who are not. The sentiment numbers reflect an average. It may well be that the passage of time has increased the depth of depression for the unemployed. Maybe we should expect more bouncing in these numbers until the economic outlook becomes clearer.”

MARC PADO, U.S. MARKET STRATEGIST, CANTOR FITZGERALD & CO., SAN FRANCISCO:

“I think the big run in oil is still fresh in people’s minds. For the market, the fact that (sentiment) was down when they were looking for an increase… I don’t think they’re going to take it as a significant catalyst.”

MARKET REACTION: STOCKS: U.S. stock indexes held losses BONDS: U.S. Treasury debt prices rose slightly DOLLAR: U.S. dollar was up against the yen

Investment Analysis

Instant View: Consumer sentiment slumps in April