The University of Michigan Consumer Sentiment Index preliminary report for November came in at 69.3, a slight improvement from the 67.7 reading of the final report for October. This is fractionally higher than the 69.0 forecast of economists polled by Bloomberg, so the press will likely tout today’s number as “better than expected.” Today’s number is 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: Confidence in government economic policies has fallen to the lowest level since the closing months of the Bush presidency, with just 11% of consumers holding favorable evaluations of Obama’s policies. Although mid-term elections primarily respond to local rather than national issues, residents of nearly all local areas expressed economic discontent. It would not be surprising for confidence to rebound after the election; it would be surprising if those gains proved to be more than temporary. If the lame duck Congress does not immediately pass an extension of the Bush tax cuts, not even deep discounts will secure modest gains in holiday sales. (See the full report in PDF format.)
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.
Doug Short Ph.d is the author of dshort.com.