by Jill Mislinski, Advisor Perspectives/dshort.com
The University of Michigan Preliminary Consumer Sentiment for December came in at 96.8, down 1.7 from the November Final reading of 98.5. Investing.com had forecast 99.2.
Surveys of Consumers chief economist, Richard Curtin, makes the following comments:
Consumer sentiment has remained quite favorable although it continued to slowly recede in early December from its October cyclical peak. Most of the recent decline was concentrated in the long-term prospects for the economy, while consumers thought current economic conditions have continued to improve. Importantly, the largest decline in long-term economic prospects was recorded among Democrats, which reflected their concerns about the impact of the proposed changes in taxes. Perhaps the most important changes in early December were higher income expectations as well as a higher expected inflation rate in 2018. Income gains have been slowly improving during the past year, and the data indicate that trend has continued. In contrast, the rise in inflation expectations in early December was a surprise, and confidence in this finding must await confirmation in the months ahead before any inferences are drawn. Buying plans for durables have improved in early December, largely due to attractive pricing, in contrast to the rise in the expected inflation rate. Overall, the data signal an expected gain of 2.7% in real consumption expenditures in 2018.
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 12.9 percent above the average reading (arithmetic mean) and 14.2 percent above the geometric mean. The current index level is at the 84th percentile of the 480 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 27.5 points above the average recession mindset and 8.9 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 a 1.7 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.
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.The survey findings since December 2015 saw gradual decline followed by a bounceback later in the year.
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