Michigan Sentiment Disappoints

The University of Michigan Consumer Sentiment Index preliminary report for January came in at 72.7, a disappointing decline from the 74.5 of the final report for November. According to Briefing.com, the consensus expectation was for an increase to 75.5.

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.

Click on graphs for larger images.

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 19th 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 really is The Great Recession.

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