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posted on 17 July 2015

Preliminary July 2015 Michigan Consumer Sentiment Down Slightly but Still Positive Outlook

by Doug Short, Advisor Perspectives/

The University of Michigan preliminary Consumer Sentiment for July came in at 93.3, a decrease from the 96.1 June final reading. had forecast 96.1 for the July preliminary. This is the eighth month above 90 since the 2003 to 2005 expansion.

Surveys of Consumers chief economist, Richard Curtin makes the following comments:

Consumer confidence continued to meander sidewards with no indication of a potential break in the prevailing positive trend in sentiment. The small loss in early July reflected a slight rise in concerns about international developments which was partially offset by continued news of job gains. The July reading was the eighth month above 90.0, the best record since seventeen months were recorded from late 2003 to early 2005 during the last expansion. Consumption expenditures will remain the driving force in the economy, with the data indicating an expansion in consumption by 3% in 2015.

See the chart below for a long-term perspective on this widely watched indicator. Recessions and real GDP are included to help us evaluate the correlation between the Michigan Consumer Sentiment Index and the broader economy.

Click to View

To put today's report into the larger historical context since its beginning in 1978, consumer sentiment is now 9 percent above the average reading (arithmetic mean) and 11 percent above the geometric mean. The current index level is at the 90th percentile of the 451 monthly data points in this series.

The Michigan average since its inception is 85.2. During non-recessionary years the average is 87.5. The average during the five recessions is 69.3. So the latest sentiment number puts us 24 points above the average recession mindset and 6.1 points above the non-recession average.

Note that this indicator is somewhat volatile, with a 3.3 point absolute average monthly change. The latest data point was a -2.9 point change from the previous month. For a visual sense of the volatility, here is a chart with the monthly data and a three-month moving average.

For the sake of comparison here is a chart of the Conference Board's Consumer Confidence Index (monthly update here). The Conference Board Index is the more volatile of the two, but the broad pattern and general trends have been remarkably similar to the Michigan Index.

Click to View

And finally, the prevailing mood of the Michigan survey is also similar to the mood of small business owners, as captured by the NFIB Business Optimism Index (monthly update here).

Click to View

The general trend in the Michigan Sentiment Index since the Financial Crisis lows had been one of slow improvement. But the latest survey findings were a welcome bounce after last month's interim low.

Caveats on the Use of University of Michigan Consumer Sentiment

This survey is quantitatively derived from a fairly complex questionnaire (sample here) via a monthly telephone survey. According to Bloomberg:

This release is frequently released early. It can come out as early as 9:55am EST. The official release time is 10:00. Base year 1966=100. A survey of consumer attitudes concerning both the present situation as well as expectations regarding economic conditions conducted by the University of Michigan. For the preliminary release approximately three hundred consumers are surveyed while five hundred are interviewed for the final figure. The level of consumer sentiment is related to the strength of consumer spending. Please note that this report is released twice per month. The first is a preliminary figure while the second is the final (revised) figure.

This is a survey, a quantification of opinion rather than facts and data. The question - does sentiment lead or truly correlate to any economic activity? Since 1990, there seems to be a loose general correlation to real household income growth.

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