Consumer Sentiment Surges to Five-Year High

The Reuters/University of Michigan consumer sentiment index surged to its highest level since September 2007, up from 78.3 last month to 83.1 in October, the first of two readings for the month. Over the last three months, the index has surged almost 11 points, one of the biggest moves higher in the last decade. 

The main reason for the increase was that the expectations index jumped 6.0 points to 79.5, the best reading since July 2007, while the current conditions component also improved, up from 85.7 in September to 88.6 in October, just below the recovery high of 88.7 that was set two months ago. A separate reading on the economic outlook over the next year jumped ten points to 97.0.

Inflation expectations moved lower, the one-year outlook on consumer prices falling from a 3.3 percent gain to 3.1 percent and from 2.8 percent to 2.6 percent over five years.

While a better labor market and rising home prices are no doubt factors in the recent surge, it’s clear that the Presidential race is also playing a role as the mood of Democrats improved after a successful convention and a series of gaffes by challenger Mitt Romney last month and, more recently, a poor debate performance by President Obama has resulted in Republican spirits being lifted as shown below in Gallup polling.

Maybe we should just stop looking at all the economic data until the election is over…