Consumer Sentiment Bounces

The University of Michigan Consumer Sentiment Index preliminary report for April came in at 69.6, a modest improvement over the 67.5 March final reading. The consensus expectation had been for 66.5 and’s own forecast was for 66.0.

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 19% below the average reading (arithmetic mean), 18% below the geometric mean, and 20% below the regression line on the chart above. The current index level is at the 16th percentile of the 400 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 other recent recessions, but the trend has been one of general improvement with a sharp deviation downward from that trend in March.  The priminary reading for April suggests that the March decline could be a one month shock.