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posted on 16 September 2016

Preliminary September 2016 Michigan Consumer Sentiment Unchanged from August Final

by Doug Short / Jill Mislinski, Advisor Perspectives/dshort.com

The University of Michigan Preliminary Consumer Sentiment for September came in at 89.8, unchanged from the August Final reading. Investing.com had forecast 90.8.

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

Confidence was unchanged in early September from the August final and barely different from the July reading. Small and offsetting changes have taken place in the third quarter 2016 surveys: modest gains in the outlook for the national economy have been offset by small declines in income prospects as well as buying plans. While income gains expected during the year ahead have edged upward, declines in inflation expectations were the main reasons future financial prospects improved, as both near and long term inflation expectations fell to near record lows. Nonetheless, buying plans suffered from the perception that no additional price discounts would be offered. Even the more optimistic outlook for the economy had little if any impact on the expected growth rate in new jobs. Importantly, all of these changes were relatively minor. Overall, consumers remain reasonably optimistic about their economic prospects. Real personal consumption expenditures can be expected to grow by 2.6% through mid 2017.

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.

Michigan Consumer Sentiment

To put today's report into the larger historical context since its beginning in 1978, consumer sentiment is 5.1 percent above the average reading (arithmetic mean) and 6.4 percent above the geometric mean. The current index level is at the 53rd percentile of the 465 monthly data points in this series.

The Michigan average since its inception is 85.4. During non-recessionary years the average is 87.6. The average during the five recessions is 69.3. So the latest sentiment number puts us 20.5 points above the average recession mindset and 2.2 points above the non-recession average.

Note that this indicator is somewhat volatile, with a 3.0 point absolute average monthly change. The latest data point saw no 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.

3-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.

Consumer Confidence

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).

NFIB Optimism

The general trend in the Michigan Sentiment Index since the Financial Crisis lows has been one of slow improvement.The survey findings since December 2015 saw gradual decline followed by a bounceback later in the year, with January 2015 remaining the interim peak.

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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