Michigan Consumer Sentiment: October Preliminary Slips

The University of Michigan Preliminary Consumer Sentiment for October came in at 99.0, down 1.1 from the September Final reading. Investing.com had forecast 100.4.

Surveys of Consumers chief economist, Richard Curtin, makes the following comments:

Consumer sentiment slipped in early October, although it remained at quite favorable levels and just above the average reading during 2018 (98.5). The small decline was due to less favorable assessments by consumers of their personal finances. Unfortunately, the downward revisions in the rate of growth in household incomes were accompanied by upward revisions in the year-ahead expected inflation rate, weakening real income expectations. It should be noted that the sharp selloff in equities overlapped interviewing by only one evening, having virtually no influence on the early October data. In addition, there was no evidence of a spillover from the Kavanaugh hearings to economic prospects. Indeed, confidence in the government’s economic policies rose in October to its highest level in the past fifteen years (see the chart), reflecting the strong performance of the national economy. Most of the October gain was due to an upward adjustment by Democrats, although their evaluations were still well below the much more favorable evaluations of Republicans. When asked about the upcoming election and its potential impact on their own personal finances and on the overall economy, consumers more frequently cited Republicans than Democrats as having a positive effect, with margins of 35% versus 26% for the overall economy and 34% versus 24% for the their own personal finances. A substantial portion, however, replied that there was no difference for the overall economy (36%) or for their own personal finances (41%). [More...]

See the chart below for a long-term perspective on this widely watched indicator. Recessions and real GDP are included to help us evaluate the correlation between the Michigan Consumer Sentiment Index and the broader economy.

Michigan Consumer Sentiment

 

To put today's report into the larger historical context since its beginning in 1978, consumer sentiment is 15.1 percent above the average reading (arithmetic mean) and 16.4 percent above the geometric mean. The current index level is at the 89th percentile of the 490 monthly data points in this series.

Note that this indicator is somewhat volatile, with a 3.0 point absolute average monthly change. The latest data point saw a 1.1 percent change from the previous month. For a visual sense of the volatility, here is a chart with the monthly data and a three-month moving average.

3-Month Moving Average

 

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 broad pattern and general trends have been remarkably similar to the Michigan Index.

Consumer Confidence

 

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).

NFIB Optimism

 

The general trend in the Michigan Sentiment Index since the Financial Crisis lows was one of slow improvement. The survey findings saw a jump in late 2016 with improvements that have continued through the present.

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