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The University of Michigan Consumer Sentiment final number for January came in at 73.8, reversing the dip to 71.3 in the preliminary reading and rising slightly above the December final of 72.9. The Briefing.com consensus was for 71.4.

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 today's report into the larger historical context since its beginning in 1978, consumer sentiment is 13% below the average reading (arithmetic mean) and 12% below the geometric mean. The current index level is at the 24th percentile of the 421 monthly data points in this series.

The Michigan average since its inception is 85.3. During non-recessionary years the average is 87.7. The average during the five recessions is 69.3. So the latest sentiment number of 73.8 puts us 4.5 above the average recession mindset and 13.9 below the non-recession average.

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.

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 has been one of slow improvement. We saw a major drop in sentiment in 2011 followed by a rapid return to the general trend of higher highs. The January final reading is a bit higher than analysts expected, which was probably based to some extent on the impact of smaller paychecks for John and Jane Doe following the expiration of the 2% FICA tax cut.

Source: Michigan Consumer Sentiment Beats Expectations