Economy Watch: Consumer Sentiment Up in June

By Dees Stribling, Contributing Editor

Despite outbreaks of international brouhaha, American consumers were a little more optimistic in June than in May, though not quite as much as economists had expected. The University of Michigan reported on Friday that its consumer sentiment index edged higher the last two weeks of June, coming in at a final reading for the month of 82.5. That’s up from the mid-month June reading of 81.2 and the end of May reading of 81.9.

The current conditions component of the index rose to 96.6 at the end of June, compared with a final May reading of 94.5. The expectations component didn’t move much, coming in at 73.5, and consumers aren’t expecting there to be much inflation going forward. That’s been the expectation for some time, and so far, consumers have been right about low inflation, despite the notion among some economists that a low interest rate environment and especially QE3 would spur higher inflation.

On the whole, consumer sentiment tracks with the health of the economy, and indirectly measures the willingness of consumers to spend, which is a mainstay of the economy. The final reading has been between 75 and 85 for the last three years. The most recent steep drop was during the summer of 2011, when Congress made noises about defaulting on the debt of the United States; sentiment bounced back when that didn’t happen. The University of Michigan’s Consumer Survey Center queries 500 U.S. households each month on their own financial conditions, but also their sentiment about the wider economy.

Leading economic index up again in June

The Conference Board said on Friday that its index of leading economic index was up 0.3 percent in June to a reading of 102.2, following a rise of 0.7 percent in May and 0.3 percent in April. The organization’s coincident economic index increased 0.2 percent in June to 109.2, and its lagging economic index increased 0.5 percent in June to 124.4. For all of the indexes, 2004 = 100.

“Broad-based increases in the [leading economic index] over the last six months signal an economy that is expanding in the near term and may even somewhat accelerate in the second half,” Ataman Ozyildirim, an economist at the Conference Board, notes. “Housing permits, the weakest indicator during this period, reflects some risk to this improving outlook. But favorable financial conditions, generally positive trends in the labor markets, and the outlook for new orders in manufacturing have offset the housing market weakness over the past six months.”

The Conference Board compiles its indexes from a number of economic metrics. Those include average weekly hours in manufacturing, average weekly initial claims for unemployment insurance, and manufacturers’ new orders for consumer goods and materials. Also in the mix are building permits, stock prices, the interest rate spread on 10-year Treasury bonds, and average consumer expectations for business conditions, among others.

Wall Street rebounded from its downward motion on Thursday with an upsurge on Friday, also shrugging off news of violent events in other parts of the world. The Dow Jones Industrial Average advanced 123.37 points, or 0.73 percent, while the S&P 500 was up 1.03 percent and the Nasdaq gained 1.55 percent.