Michigan Consumer Sentiment Soars Above Expectations

Includes: IYC, IYK, SCC, SZK, UCC, UGE
by: Doug Short

The University of Michigan Consumer Sentiment preliminary number for December came in at 82.5. Today's number is well above the Investing.com forecast of 76.0 and a massive 7.4 point gain over the November final reading of 75.1. Today's level is 2.6 points below the interim high in July and 8.0 points above the preliminary reading for December a year ago.

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 now only 3 percent below the average reading (arithmetic mean) and 2 percent below the geometric mean. The current index level is at the 39th percentile of the 432 monthly data points in this series.

The Michigan average since its inception is 85.1. During non-recessionary years the average is 87.5. The average during the five recessions is 69.3. So the latest sentiment number puts us 13.2 points above the average recession mindset and 5.0 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 we've certainly seen some volatility over the past two years, with the dysfunction in Washington DC as a contributing factor. Today's sentiment level, however, is a welcome improvement and bodes well for the holiday season.