It appears as though the economy is finally starting to pick back up. The Thomson Reuters Consumer Sentiment report shows that although there is still some negative news out there regarding the economy, people are beginning to feel better about it. In a report released today, consumer sentiment leaps to a five year high. An increase of nearly five points over the September numbers bumps the index to 83.1, the highest it has been for the past five years (see the chart). While the index does fluctuate from month to month, this large of a fluctuation is rarely seen.
The reasoning behind why consumers are suddenly more positive about the economy is contrary to what is often seen before a presidential election. There are many smaller factors that seem to have led to more people feeling good about what is to come. The biggest factor is most likely the release from the Bureau of Labor Statistics showing that unemployment made significant ground this month moving from 8.1% to 7.8%. More people getting back to work means more people are happy about the direction the country is moving.
Similar to a decrease in those unemployed, the Department of Labor indicated that initial claims for unemployment also fell by 30,000. While the unemployment percent is often skewed because some people have simply given up looking for work, the initial claims report is used as a more accurate indicator of the employment situation. A significant drop like this (around an 8% decrease) shows that many more people have found, or held onto, work than in previous months. As Alan indicated it brings the initial claims to the lowest number seen during President Obama’s term.
Even though gasoline prices have gone up recently, and according to the BLS inflation rose quite a bit in August, consumers still see prices as in an overall downward trend. The expectation that inflation will not be quite as rapid as previously thought has led to a more positive outlook on the overall economy.
Consumer sentiment leaps to a five year high is surprising this close to the election. It is more usual that as any big political change draws near, consumers become more wary. They hold off on big purchases, employers are hesitant to hire new help, and investors often base their decisions on emotion rather than logic. While the recent positive reports are good news, we can only hope the good news continues on through the political season and into the next presidential term.
The Thomson Reuters/University of Michigan Surveys of Consumers is a poling of 500 households. It is conducted once per month and asks individuals and households on their outlook of the economy and financial conditions. The report is issued around the middle of the month and finalized two weeks later.