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posted on 28 July 2017

Final July 2017 Michigan Consumer Sentiment Continues to Slip

by Jill Mislinski, Advisor Perspectives/dshort.com

The University of Michigan Final Consumer Sentiment for July came in at 93.4, down from the June Final reading of 95.1. Investing.com had forecast 93.1.

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

Consumer confidence remained largely unchanged at the same favorable level recorded at mid-month. The overall Sentiment Index has declined by 5.1 Index-points since the January peak, which was the highest figure in a dozen years. The relatively small decline still left the Sentiment Index higher in the first seven months of 2017 than in any other year since 2004. The size of the decline was tempered by record favorable views of Current Economic Conditions, which rose to its highest level since July of 2005. These gains were mainly due to improvements in consumers' personal finances. At the same time, consumers expressed less optimism about future prospects for the overall economy and for their own personal finances. The Expectations Index fell from 90.3 in January to a still positive 80.5 in July; if it continues to decline by another 10 points in the second half of 2017, the loss would become more worrisome. Moreover, while current conditions were judged strictly on the performance of the economy, expectations continue to be significantly influenced by partisanship: the difference on the Expectations Index between Democrats and Republicans was 45 Index-points (63.7 versus 108.7); among Independents, in contrast, the Expectations Index was exactly equal to the weighted difference between the partisan extremes (80.5). Importantly, the partisan gap has narrowed in the past six months, mostly due to Republicans tempering their optimism. The recent declines among Republicans were somewhat predictable, but the maintenance of extreme pessimism among Democrats is more surprising.[More...]

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 9.1 percent above the average reading (arithmetic mean) and 10.3 percent above the geometric mean. The current index level is at the 71st percentile of the 475 monthly data points in this series.

The Michigan average since its inception is 85.6. During non-recessionary years the average is 87.8. The average during the five recessions is 69.3. So the latest sentiment number puts us 24.1 points above the average recession mindset and 5.6 points below 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 a 1.8 percent 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 its interim peak in January of 2017.


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