Consumer Sentiment

Consumer Sentiment fell to a decade-low

HOW CLOSE WERE i360’s PREDICTIONS?

Consumer Sentiment fell to a decade-low level this month, surprising economists and triggering temporary volatility in the equity, bond and option markets.

As previously profiled here, i360 has been utilizing data from its Consumer Pulse longitudinal survey to accurately predict the bi-monthly Consumer Sentiment release.

Looking back over the past 6 months i360’s estimates on the Preliminary Release have predicted the direction of the surprise every month and i360 has the lowest total absolute error of any firm publishing estimates across the period. See chart below.

i360’s model called for a large negative surprise. Upon a closer look and per the chart below, of 52 economists, i360 and a single other economist were the only forecasters to predict a significant negative surprise ahead of the release.

But just how close were we? As illustrated below, while the median remained relatively close to that of the final release of the previous month (indicating that a surprise was not anticipated), i360 called for a miss of more than two standard deviations. Conversely, other economists were clustered closely to July’s final release of 81.2 and either didn’t pick up on the failing sentiment or worse, thought sentiment was increasing.

What does this all mean?

Immediately after the release, Equity Markets took a quick brief dive but quickly recovered while Bond Markets continued to surge for the remainder of the trading day. Firms armed with i360’s prediction could have anticipated the fluctuations in their options and futures strategies and been ready to capture alpha by seeing the shift in Sentiment ahead of time.