Michigan Consumer Sentiment: Up Fractionally From Last Month

by: Doug Short

The University of Michigan Consumer Sentiment final number for November came in at 82.7, a fractional gain from the October final of 82.6 but off the 84.9 of the November preliminary report. Wednesday's number was below the Briefing.com consensus of 84.5.

In the preliminary update I said it would be particularly interesting to see if the November final confirms the significant uptick at that time. It did not.

See the chart below for a long-term perspective on this widely watched index. I've highlighted recessions and included real GDP to help evaluate the correlation between the Michigan Consumer Sentiment Index and the broader economy.

To put yesterday's report into the larger historical context since its beginning in 1978, consumer sentiment is 3% below the average reading (arithmetic mean) and 2% below the geometric mean. The current index level is at the 39th percentile of the 419 monthly data points in this series.

The Michigan average since its inception is 85.3. During non-recessionary years the average is 87.8. The average during the five recessions is 69.3. So the latest sentiment number of 82.7 moves us closer to the non-recession sentiment averages.

It's important to understand that this indicator can be somewhat volatile. For a visual sense of the volatility here is a chart with the monthly data and a three-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 are remarkably similar to the Michigan Index, although the Conference Board yet to show a significant break above the level achieved in February 2011.

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).

The trend in sentiment since the Financial Crisis lows had been one of slow improvement, but it topped out in February of last year at 77.5 and plunged to an interim low of 55.7 in August 2011. The 79.3 peak in May of this year was followed by a summer slump of 72.3 in July, as stresses over the presidential election, periodically grim news from the eurozone and uncertainties about the "fiscal cliff" dominated the news. But the November final number of 82.7, while off the preliminary 84.9, continues to suggest a breakthrough to the upside.