August 2011 Michigan Consumer Sentiment Survey Crashes

by Doug Short, cross posted from Advisor

The University of Michigan Consumer Sentiment Index preliminary report for August came in at 54.9, a stunning decline from the July final number of 63.7. The consensus expectation had been for 62.5 and’s own forecast was for 62.0. The August preliminary number is the third lowest in the history of this indicator. The two lower months (52.7 and 51.7) were at the depths of the 1980 recession.   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 correlation between the Michigan Consumer Sentiment Index and the broader economy.

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To put today’s report into the larger historical context since its beginning in 1978, consumer sentiment is about 36% below the average reading (arithmetic mean), 35% below the geometric mean, and 37% below the regression line on the chart above. The current index level is at the 0.4 [!] percentile of the 404 monthly data points in this series (I had to add a decimal place in my spreadsheet to get a reading other than zero).

The Michigan average over since its inception is 85.9. During non-recessionary years the average is 88.5. The average during the five recessions is 69.3.

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.

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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).

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Consumer and small business sentiment remains at levels associated with other recent recessions. The trend in sentiment since the Financial Crisis lows has been one of slow improvement. But the August preliminary numbers from the Michigan survey constitute a giant step backward.

Related Articles

Michigan Consumer Sentiment Has A Recession Mentality by Doug Short

Consumer Confidence: Conference Board Index Down Again in June 2011 by Doug Short

Leading Economic Indicator Higher?? in May 2011 by Steven Hansen

The Great Recession Continues for the Consumer by Rick Davis

One reply on “August 2011 Michigan Consumer Sentiment Survey Crashes”

  1. I am a recovery denier, but if I wanted to predict a new recession, I would notice that consumers in these two surveys have consistently outperformed the Fed and blue chip forecasters. This is the second leg down, 1932.

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