Assessing the Economy Through Consumer Sentiment and Housing

Several key economic indicators are released every week offering valuable insights into the overall health of the U.S. economy. Policymakers and advisors closely monitor economic indicators to understand recession risk and the direction of interest rates because the data can ultimately impact business decisions and financial markets. In the week ending on August 24th, the SPDR S&P 500 ETF Trust (SPY) rose 0.14% while the Invesco S&P 500® Equal Weight ETF (RSP) was down 0.37%.

Analyzing a variety of economic indicators allows us to uncover different facets of economic activity, contributing to a more comprehensive understanding of the broader economic landscape. For instance, the Michigan Consumer Sentiment Index from last week shed light on consumer sentiment towards the economy, while the latest data on existing and new home sales offered fresh insights into current housing market trends. In this article, we take a deeper look at each of these three indicators.

Consumer Sentiment

Consumer sentiment experienced a slight dip this month, driven by growing consumer uncertainty regrading the future outlook of the economy. According to the final August report of the Michigan Consumer Sentiment Index, the index recorded a reading of 69.5. This marks a 2.9% decrease from July’s final reading and falls short of the forecast value of 71.2. Despite the decline, the latest reading is the index’s second highest reading in 20 months, with only July holding a higher position.

The Michigan Consumer Sentiment Index is a monthly survey measuring consumers’ opinions with regards to the economy, personal finances, business conditions, and buying conditions. In the latest report, buying conditions and living conditions expectations improved, but the long-run economic outlook deteriorated. Inflation expectations remain high, and consumers feel that recent improvements in inflation and the economy have moderated. Consequently, consumers are uncertain about the future, as evidenced by a 4.1% decline in future expectations, which largely contributed to this month’s minor drop in consumer sentiment.

The Consumer Discretionary Select Sector SPDR ETF (XLY) is tied to consumer sentiment.