Consumer Sentiment Rises, But Shows Weakness

The first indication of the China effect on U.S. consumers looks positive but ultimately is mixed. January's flash consumer sentiment index did rise 7 tenths from final December to 93.3 but current conditions, the component that picks up the immediate impact of special factors, fell 3.0 points to 105.1. Should volatility in markets begin to ease and confidence in China improve, this reading could pop back as quickly as month end.

Lifting the mid-month index is a rise in the expectations component, up 3.0 points 85.7. Behind this gain is strength in the jobs market and perhaps even falling oil prices as 1-year inflation expectations are down a sizable 2 tenths to 2.4 percent. This is offset in part by a 1 tenth rise in 5-year expectations to 2.7 percent.

The resilience in long-term optimism is a plus for the U.S. economy though the eroding in short-term inflation expectations will not be encouraging to Federal Reserve policy makers who have launched a rate-hike sequence for an economy still struggling against deflation. The Dow is moving off opening lows in early reaction to this report.

Recent History Of This Indicator:
Consumer sentiment is expected to come in at 93.0 for the January flash, which would be 4 tenths higher than December but a bit lower than the month-end trend. Strength has been centered in the current conditions component which will be especially watched in this report given events in China. Inflation expectations have been very subdued.