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Consumer sentiment and retail sales

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The University of Michigan issues its monthly Consumer Sentiment Index on Friday. Numbers from the survey have long been used as a leading economic indicator— data that economists mine for clues about what could happen next. This month’s number may contain clues about retail spending this holiday season. 

Researchers started looking at consumer sentiment decades ago, partly to help predict how much people would buy.

“It’s based on a theory that consumers needed both the ability to purchase goods and a willingness to purchase goods,” says Robert Leone, a marketing professor at Texas Christian University. “They needed both of those.”

Leone says sales numbers bear out the theory, and businesses depend on this data to make decisions: If the numbers say consumers will be skittish, retailers offer more discounts.

This year, the other factor — consumers’ ability to buy — looks good, says Chris Christopher, director of consumer economics at IHS Global Insight. “Even though their wage gains haven’t been that great, their expenses — the overall price level for things — is much lower,” he says. Lower gasoline prices put even more extra money in consumer wallets. “That’s helping them spend a little extra.” 

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