Consumer Sentiment Has 2007 Flashback
Thompson Reuters / University of Michigan Consumer Sentiment Index reaches its highest level since July of 2007.
Friday morning brought us the Preliminary Thompson Reuters / University of Michigan Consumer Sentiment Index for November. When one considers the fact that the American economy is 70-percent consumer driven, the news that 
the Consumer Sentiment Index has reached its highest level since July of 2007 raises hopes that a pre-recession level of demand will return to the economy, boosting the GDP and lowering unemployment. We can also hope that this level of consumer confidence will motivate some purchasing while all the deleveraging happens. The Preliminary Consumer Sentiment Index for November rose to 84.9 from 82.6 in October. Economists had been expecting a less-significant increase to 83. Despite the increase, the current level is not considered especially strong, from the perspective of economists. Nevertheless, because 84.9 is better than what we have seen since before the financial crisis, it is well received. U.S. Stocks Gain on Consumer Data, Fiscal Fears Weigh
Also on Friday, the Commerce Department’s Census Bureau released its report on Wholesale Trade, Sales and Inventories for September. The 1.1 percent inventory increase was so much higher than anticipated that many economists have raised their expectations for third quarter GDP, since the inventory boost signals that the economy is expanding faster than previously assumed. A number of reports have pointed out that economists at Barclays Bank have raised their third-quarter GDP estimate slightly above the 3 percent threshold. What If US Economic Growth Is Over?
From the report:
Sales. The U.S. Census Bureau announced today that September 2012 sales of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations and trading-day differences but not for price changes, were $414.0 billion, up 2.0 percent (+/-0.7) from the revised August level and were up 4.4 percent (+/-0.9%) from the September 2011 level. The August preliminary estimate was revised upward $0.5 billion or 0.1 percent. September sales of durable goods were up 1.2 percent (+/-0.9%) from last month and were up 2.8 percent (+/-1.2%) from a year ago.
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Inventories. Total inventories of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations but not for price changes, were $494.2 billion at the end of September, up 1.1 percent (+/-0.4%) from the revised August level and were up 7.5 percent (+/-1.2%) from the September 2011 level. The August preliminary estimate was revised upward $1.3 billion or 0.3 percent. September inventories of durable goods were up 0.9 percent (+/-0.4%) from last month and were up 8.2 percent (+/-1.1%) from a year ago.
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Inventories/Sales Ratio. The September inventories/sales ratio for merchant wholesalers, except manufacturers’ sales branches and offices, based on seasonally adjusted data, was 1.19. The September 2011 ratio was 1.16.
The major ETFs expected to respond to the November Consumer Sentiment Index are:
Consumer Discretionary Select Sector SPDR Fund ETF (NYSEARCA:XLY) -0.46%
SPDR S&P Retail ETF (NYSEARCA:XRT) -0.57%
Consumer Staples Select Sector SPDR Fund ETF (NYSEARCA:XLP) +0.03%
Vanguard Consumer Discretionary ETF (NYSEARCA:VCR) -0.42%
SPDR Industrial Select Sector ETF (NYSEARCA:XLI) +0.28%
Bottom line: The better-than-expected Consumer Sentiment Index suggests that we could be on the verge of seeing a significant degree of demand returning to the economy, providing a measure of restoration which the Federal Reserve could never accomplish.
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