The University of Michigan Consumer Sentiment Index final report for January came in at 74.2, an improvement from the interim 72.7 but a slight decline from the 74.5 of the final report for December. The January number, however, was higher than the Briefing.com the consensus expectation of 73.2.
The survey’s chief economist, Richard Curtin, speculates that the specter of inflation has influenced current sentiment:
Consumers have become increasingly concerned with rising food and fuel prices, and have noticed that fewer and smaller discounts are now available at stores and vehicle dealerships. If rising global demand puts continued upward pressure on prices, inflation is likely to be the source of considerable discontent among consumers. Given that consumers do not anticipate renewed wage growth, they are likely to again engage in selective spending cutbacks. Consumers are now less able to smooth consumption by using credit cards since fewer households now have credit cards and those that have them are likely to have lower credit limits.
See the chart below for a long-term perspective on this widely watched index. Because the sentiment index has trended upward since its inception in 1978, I’ve added a linear regression to help understand the pattern of reversion to the trend. I’ve also highlighted recessions and included real GDP to help evaluate the Michigan Consumer Sentiment Index as an indicator of the broader economy.
To put today’s report into the larger historical context since its beginning in 1978, consumer sentiment is about 13% below the average reading (arithmetic mean), 12% below the geometric mean, and 15% below the regression line on the chart above. The current index level is at the 22nd percentile of the 397 monthly data points in this series.
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 general pattern and trend are 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).
Consumer and small business sentiment remains at or near levels associated with the bottoms of other recent recessions. For consumers and small businesses this remains The Great Recession.
Consumer Confidence Index: The Best Level Since May 2010 by Doug Short
Small Business Sentiment Remains in a Stealth Recession by Doug Short
Consumer (Lack of) Confidence by Doug Short
Consumer Contraction May be Bottoming by Rick Davis
Consumer Confidence is Terrible but Improving by Steven Hansen