European Bond Buying Makes US Treasuries Attractive (Part 6 of 11)
(Continued from Part 5)
Consumer sentiment
US consumers were less positive about the US economy in March 2015. Consumer sentiment, as measured by Thomson Reuters/University of Michigan’s report, fell to 91.2 in a preliminary reading for March 2015. The final reading for February was 95.4. January’s reading of 98.1 was the highest in 11 years. The final index for March will be released on March 27.
It’s important to note that this is a volatile index. It may be subject to large revisions. You can appreciate the volatility of this index by looking at the three-month moving average chart above. As the name suggests, this chart captures the averages of the past three months every month.
The index’s average for 2014 stood at 84.1. In the past 12 months, it averaged 87.6. Another interesting figure to note is that in 135 months since January 2004, this is only the 27th time that the index was above 91.
Why did the index fall?
Optimism fell in lower and middle income households. It improved in the top-third of households by income. Lower and middle income households were concerned about an income decline due to rising utilities costs from inclement weather. Small-scale businessmen were also hurt due to the harsh winter. This lowered incomes.
However, higher utility costs are beneficial for companies like Duke Energy (DUK), NextEra Energy (NEE), Dominion Resources (D), and Southern Company (SO). They account for ~32% of the SPDR Utilities Select Sector Fund (XLU).
Consumers’ mood affects their spending behavior. It can drive the movement in consumer discretionary and staples focused ETFs like the Consumer Discretionary Select Sector SPDR Fund (XLY) and the Consumer Staples Select Sector SPDR Fund (XLP), respectively.
Other inputs
The survey’s measure of current economic conditions fell to 103 in March—compared to an upwardly revised 106.9 reading for February. It was initially reported at 103.1. Although the March reading is down by 3.6% month-over-month, it’s still up by 7.6% from a year ago.
The survey also releases inflation expectations. The results showed that the one-year inflation expectation increased to 3% in March—the highest since September 2014. It increased from 2.8% reported a month ago. Meanwhile, the five-year inflation expectations rose slightly to 2.8%—from 2.7% in the previous month.
In the next part of this series, we’ll analyze the budget balance in the US.
Continue to Part 7
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