The University of Michigan index of consumer sentiment jumped from 78.3 to 83.1 in its preliminary October print, exceeding consensus expectations. This was the best reading on the headline index since September 2007. The rise of the consumer confidence index is a good sign for the upcoming Holiday shopping season.

consumer sentiment index level highest since recession began
Via RBS Research

The survey underlying the index showed improvement in most respects. The current conditions gauge rose to 88.6, reversing its September decline and coming just short of its best level since January 2008. Underlying that improvement was a ten-point increase in the index of current personal finances, reaching its highest level in almost five years.

Though the number of households reporting a better financial situation than a year ago rose slightly, the bulk of the improvement came from a significantly lower fraction saying it was worse. The proportion of households reporting income gains outnumbered the fraction reporting declines for only the second time in the last 48 months.
Meanwhile, consumer expectations surged from 73.5 to 79.5, the highest since July 2007. There were noticeable increases in the gauges for the 12-month economic outlook (+10), the five-year economic outlook (+10), and expected personal finances
(+4). The number reporting increases in their home’s net value reached a four-year high. For the first time since fall of 2008, more than 50% of households anticipated income to increase over the next year.

Though the October improvement is somewhat surprising given worries about the looming fiscal cliff, the University of Michigan noted that “most consumers think the fiscal cliff will be bridged without middle class tax increases.” When asked about which presidential candidate would be better for their own personal finances and which would be better at promoting economic growth, survey respondents were evenly divided.

RBS research notes that the only slight disappointment in the preliminary October survey was a two-point decline in consumers’ assessment of buying conditions for durables. The proportions of households saying it is a good time to buy large household goods, houses and vehicles all fell.

It is difficult to tell what drove this deterioration, though at least in part fewer consumers are citing low prices as a reason to buy. Somewhat surprisingly, the index also indicated that overall consumer inflation expectations inched downward by two
tenths, to 3.1% (the year ahead) and 2.6% (five years ahead). The latter was the lowest since March 2009.