Consumer sentiment rises to highest level since 2007

We should be skeptical of a lot of economic indicators, but even the noisiest data is sometimes followed closely by economists, businesses, and investors.

That’s the case with consumer sentiment, and the widely respected Thomson Reuters/University of Michigan index.

From Reuters’ Consumer sentiment jumps ahead of elections:

The Thomson Reuters/University of Michigan’s preliminary October reading on the overall index on consumer sentiment came in at 83.1, up from 78.3 the month before, and the highest since September 2007, the survey showed on Friday.

The new buoyancy among consumers comes shortly after the U.S. unemployment rate tumbled to its lowest in nearly four years in September as more people returned to the workforce and found jobs than economists had predicted.

“We are getting some quite interesting signals from consumer sentiment and employment data – both (the) unemployment rate and initial claims – that there has been some quite significant improvement in the economy,” said David Sloan, an economist at 4Cast in New York.

I follow the economy pretty closely, and I had assumed that the index would go down, not up. I thought that uncertainty about the November election and the so-called “fiscal cliff” would drag the number down.

Taken with last Friday’s release about the unemployment rate, which showed both more Americans working and more Americans in the labor force, and the recent weekly declines in new claims for unemployment insurance, the consumer sentiment index number released to day is especially encouraging.

I don’t know if we’re seeing a “turn” in the economy as much as continued sluggish growth, but there’s increasing evidence that the growth might be not-so-sluggish.

The following graph comes from Calculated Risk.

Note how noisy the index is — that’s one reason that it should be taken with a grain of salt. But the trend line clearly shows the relatively robust economy of the late 1980s, the various recessions, the boom through the late 90s, the choppy growth for years after the 2001-2002 recession, and the steep cliff that the economy fell off in late 2007 and early 2008.

A reading of 83.1 is still quite low, but it’s incredibly encouraging.