posted on 29 January 2016
by Doug Short, Advisor Perspectives/dshort.com
The University of Michigan Final Consumer Sentiment for January came in at 92.0, a 1.3 point decrease from the 93.3 January Preliminary reading and a 0.6 point decrease from the December Final Reading. Investing.com had forecast an even 93.0.
Surveys of Consumers chief economist, Richard Curtin makes the following comments:
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.
To put today's report into the larger historical context since its beginning in 1978, consumer sentiment is 7.8 percent above the average reading (arithmetic mean) and 9.1 percent above the geometric mean. The current index level is at the 65th percentile of the 457 monthly data points in this series.
The Michigan average since its inception is 85.3. 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 22.7 points above the average recession mindset and 4.5 points above the non-recession average.
Note that this indicator is somewhat volatile, with a 3.1 point absolute average monthly change. The latest data point was a 0.6 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.
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).
The general trend in the Michigan Sentiment Index since the Financial Crisis lows has been one of slow improvement. But the survey findings since December have been relatively range bound with January 2015 remaining the interim peak.
Caveats on the Use of University of Michigan Consumer Sentiment
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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