Michigan Consumer Sentiment: Lowest Level Since April

Includes: PMR, RETL, RTH, XRT
by: Doug Short

The University of Michigan Consumer Sentiment final number for September came in at 76.5. Friday's number is below the Investing.com forecast of 78.0 and a 4.6 decline from the August final reading of 82.1. The September reading is 7.6 points below the interim high in July and at the lowest level since April.

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 Friday's report into the larger historical context since its beginning in 1978, consumer sentiment is now 9 percent below the average reading (arithmetic mean) and 8 percent above the geometric mean. The current index level is at the 31st percentile of the 429 monthly data points in this series.

The Michigan average since its inception is 85.2. During non-recessionary years the average is 87.6. The average during the five recessions is 69.3. So the latest sentiment number puts us 8.2 points above the average recession mindset and 10.1 points below the non-recession average.

It's important to understand that this indicator is somewhat volatile with a 3.1 point absolute average monthly change. 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 have been 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, but the last two months have moved in the wrong direction.