In Friday’s look at the Michigan Consumer Sentiment Index, the headline reading came in weaker than expected, falling from 82.7 to 74.5. Based on this preliminary reading, sentiment in December fell by the largest amount since July 2010. Although the headline reading was down substantially, what was interesting about this month’s report was the fact that practically all of the drop was due to a sharp decline in the expectations component (second chart) of the survey and not the “current conditions” component.
The charts below shows the two components of the Michigan Confidence report that make up the headline index. The first chart shows the gauge of current conditions. This month, that component dropped by less than a point, falling from 90.7 down to 89.9. As the current conditions component remained pretty stable, expectations for six months out plummeted from 77.6 down to 64.6. The thirteen percentage point drop in the expectations component was its largest one-month decline since March 2011, and it was only the fifth time since 1979 that this component dropped by thirteen percentage points or more.