The preliminary Reuters/University of Michigan consumer sentiment number for November rose to its highest level since 2007. Does this foreshadow a faster pace of consumer spending? I think it is too early make such predictions. Remember, sentiment has been rising since the middle of 2011, but consumer spending has sagged. So far this year, consumer sentiment has mostly played a game of catch-up.
In the middle of 2010, real household spending diverged from consumer sentiment. This year, the two series re-converged:
Consumer sentiment so far has simply returned to levels consistent with the pace of spending. Further gains, however, would be consistent with faster spending. Something to keep an eye on as an upside risk in 2013.
