Consumer sentiment is the measurement of consumers' attitudes towards their financial positions and the present situation as well as expectations of the economic conditions. Similar to consumer confidence, consumer sentiment is directly related to consumer spending. Since consumer spending accounts for almost two-third of U.S GDP, the level of consumer sentiment then becomes a key indicator to gauge the health of the economy.
Consumer sentiment is measured using the Michigan Consumer Sentiment Index (MSCI). The report is released twice a month from data collected from telephone surveys conducted with 500 U.S consumers. The survey is carried out by the University of Michigan and queries in the survey include consumers' financial situation and attitudes about the economy. Approximately 60% of total survey results are released in the preliminary report on the 10th of each month whereas the final report for the prior month is released on the first of the month.
The pattern in consumer attitudes has the foremost influence on both the stock and bond markets. Consumer sentiment figure impacts the stock market positively when sentiment is up, and negatively when sentiment is down. The industry that is most affected by consumer sentiment is the retail industry, as their profits are directly affected by consumer spending. In 2007, the credit crunch and spiking gasoline prices drove down consumer sentiment to record lows. However, as the index began to increase again in 2008, it helped investors to confirm that the economy is easing out of recession.
See also: Consumer Confidence