The University of Michigan Consumer Sentiment Index final report for February came in at 77.5, the highest level since January 2008. The February number beat the Briefing.com consensus expectation of no change from the 75.1 in the February preliminary report.
The survey’s chief economist, Richard Curtin, offers his overview in the latest report entitled Improved Job Prospects Trump Rising Prices:
|Consumers are increasingly aware that the economy is improving and, more importantly, expect job prospects to become more favorable in 2011. These developments are likely to draw more discouraged workers back into the labor force. This is likely to result in more job applicants than the economy can handle, with the unemployment rate edging upward as a result. Better job prospects have thus far completely offset rising concerns with higher food and fuel prices. While the pace of consumer spending is likely to improve in 2011 to 2.9%, the pace of growth is likely to be slower in 2012 once the payroll tax cut ends at the close of 2011.|
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.
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.
Consumer and small business sentiment remains at or near levels associated with other recent recessions, but the trend is definitely in the direction of improvement.
Doug Short Ph.d is the author of dshort.com.