Michigan Consumer Sentiment Index: Better, But Still Well Below Average

The University of Michigan Consumer Sentiment Index final report for November came in at 71.6, an improvement from the 67.7 reading of the final report for October. Today’s number is still well off the high for the year, which was the June reading of 76.0.

The survey’s chief economist, Richard Curtin, has this summary:

It is clearly too early to declare the November uptick in consumer confidence a turning point. It marks the third time that the Sentiment Index has reached this level since the cyclical low was recorded two years ago. In each of the prior rebounds, the gains as well as subsequent losses were mostly based on changing prospects for the economy. Unfortunately, there has been no improvement in consumers’ financial prospect in the past two years. While consumers clearly believe that the recovery has gained some traction, most still think that the economic gains will be too small to improve their own job and income position anytime soon.

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 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 20% below the average reading, 19% below the geometric mean, and 21% below the regression line on the chart above.

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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