Consumer Sentiment Rises?

Well, I didn’t see that one coming…

The Reuters/University of Michigan consumer sentiment index rose from 73.8 in January to a three-month high of 76.3 in the first of two readings for February as Americans are apparently shrugging off the double-whammy of surging gasoline prices and rising taxes (after the payroll tax holiday ended on January 1st).

This is in contrast to Gallup’s latest weekly survey earlier in the week that showed a deterioration in the American mood and the late-January plunge in consumer confidence – from 65.1 in December to 58.6 in January – as reported by the Conference Board.

Today’s consumer sentiment index topped most analysts’ estimates as the current conditions index rose from 85.0 to 88.0 while the expectations component rose from 66.6 to 68.7. According to survey director Richard Curtin, households with incomes below $75,000 were much more optimistic “with expected gains in employment more than offsetting declines in after-tax incomes due to the end of the payroll tax cut”.

Rising pump prices are not yet affecting the survey’s inflation expectations as the one-year inflation outlook was steady at 3.3 percent while five-year expectations rose from 2.9 percent to 3.0 percent.