US consumer sentiment index rises in February

The US consumer sentiment index is at its highest point in two years.

US Dollar after US consumer sentiment index Source: Bloomberg

Consumer sentiment is back on the rise. Despite the US government shutdown, the University of Michigan’s February consumer sentiment index jumped to 95.5, more than the expected 93.7 reading.

Why is the US consumer sentiment index up?

US consumer sentiment increased in February after consumer confidence increased following the shutdown and the US Federal Reserve pausing a hike in interest rates.

‘The early February gains reflect the end of the partial government shutdown as well as a more fundamental shift in consumer expectations due to the Fed's pause in raising interest rates,’ said Richard Curtin, chief economist for the Surveys of Consumers.

‘The lingering impact of the shutdown was responsible for some of the negative economic evaluations, and, at the time that these interviews were conducted, uncertainty about whether a second shutdown would occur continued to have a slight depressing impact on confidence,’ added Curtin.

How will the US consumer sentiment index affect the economy?

The positive news comes after disappointing retail numbers. With the US government averting another government shutdown, consumer confidence should rise even higher. Jon Hill, BMO Capital Markets’ fixed income strategist, noted that the US consumer confidence index was an indication of a favorable time to make a major purchase.

‘In the details, consistent with the bounce in sentiment, more respondents suggested that it was a good time to buy a major household item/vehicle/house,’ said Hill.

The high consumer sentiment index could also mean another pause in the Fed raising interest rates, according to Jennifer Lee, senior economist at BMO Capital Market.

‘This suggests that the word 'patience' will be in the Fed's vernacular for some time,’ said Lee.

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