US University Of Michigan Consumer Confidence Soars In December

The University of Michigan said Friday its preliminary reading of consumer sentiment rose to 98.0 in December, from November's final reading of 93.8. It is up 5.8% from December 2015.

The index rose for the second straight month, a sustained uptick in sentiment just in time for a critical period for retailers.

Consumer confidence rose immediately after the election, and the UMich survey had cautioned that it may have been exaggerated by a sense of relief that the election was over.

But this new survey showed that people were more direct about why they turned more bullish.

"The surge was largely due to consumers' initial reactions to Trump's surprise victory. When asked what news they had heard of recent economic developments, more consumers spontaneously mentioned the expected positive impact of new economic policies than ever before recorded in the long history of the surveys," said Richard Curtin, the Surveys of Consumers chief economist, in a press release.

He continued: "There were a few exceptions to the early December surge in optimism, mainly among those with a college degree and among residents of the Northeast, although no group has adopted a pessimistic outlook for the economy."

Curtin said he was leaving his forecast for 2017 consumption growth unchanged at 2.5 percent “until specific policies are proposed.”

If confidence is sustained, it will drive up spending, Ian Shepherdson, chief economist at Pantheon Macroeconomics Ltd., said in a note.

Inflation expectations are likely to be an even more important element in the overall data. The Fed has been concerned over a decline in inflation expectations. A sustained decline would make it even more difficult to raise inflation rates to the target and level and would increase the risk that low inflation gets locked in to the economy.

Respondents expected the inflation rate in the next year will be 2.3 percent, the lowest since 2010, compared with 2.4 percent in November. Over the next five to 10 years, they project a 2.5 percent rate of price growth, down from 2.6 percent in the prior month.

Retail sales data for November will be released on Wednesday. It will show how retailers performed around what typically a shopping extravaganza weekend is following the Thanksgiving holiday in late November.

The FOMC’s final policy meeting of the year takes place from December 13 to 14, and market expectations almost guarantee a rate hike, with Fed funds futures signaling a 97% implied probability for a hike and two rate hikes in 2017.

The headline data still boosted the dollar with EUR/USD testing support below 1.0550. Bonds retreated towards unchanged on the day, while equities maintained a strong tone with US indices in positive territory.