by Doug Short / Jill Mislinski, Advisor Perspectives/dshort.com
The University of Michigan Final Consumer Sentiment for November came in at 93.8, up from the October Final reading. Investing.com had forecast 91.6.
Surveys of Consumers chief economist, Richard Curtin makes the following comments:
The initial reaction of consumers to Trump’s victory was to express greater optimism about their personal finances as well as improved prospects for the national economy. The post-election gain in the Sentiment Index was +8.2 points above the November pre-election reading, pushing the Index +6.6 points higher for the entire month above the October reading. The post-election boost in optimism was widespread, with gains recorded among all income and age subgroups and across all regions of the country. The upsurge in favorable economic prospects is not surprising given Trump’s populist policy views, and it was perhaps exaggerated by what most considered a surprising victory as well as by a widespread sense of relief that the election had finally ended. To be sure, no surge in economic expectations can long be sustained without actual improvements in economic conditions. Presidential honeymoons represent a period in which the promise of gains holds sway over actual economic conditions. Presidential honeymoons, however, can quickly end if they are unaccompanied by prospects that economic conditions will actually improve in the future. President-elect Trump appears to appreciate the importance of his first hundred days; the key issue is whether his economic policies will resonate with the nation’s consumers. The data indicate that consumer spending will advance by 2.5% in 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.
To put today’s report into the larger historical context since its beginning in 1978, consumer sentiment is 9.8 percent above the average reading (arithmetic mean) and 11.1 percent above the geometric mean. The current index level is at the 74th percentile of the 467 monthly data points in this series.
The Michigan average since its inception is 85.5. 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 24.5 points above the average recession mindset and 6.2 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 6.6 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).
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.
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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