Holiday Jolly in Effect: Michigan Consumer Sentiment Index is Better, But Still Well Below Average

The University of Michigan Consumer Sentiment Index preliminary report for December came in at 74.2, a welcome improvement over the 71.6 reading of the final report for November. Today’s number is still off the high for the year, which was the June reading of 76.0.

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 “better than expected” report into the larger historical context since its beginning in 1978, consumer sentiment is about 14% below the average reading (arithmetic mean), 13% below the geometric mean, and 16% below the regression line on the chart above. Another way to put the current level into historical context is that it is at the 23rd percentile of the 396 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).

Doug Short Ph.d is the author of dshort.com.

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