Michigan Consumer Sentiment: February Preliminary Retreated

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by: Doug Short

Summary

The University of Michigan Preliminary Consumer Sentiment for February came in at 95.7, down from the January Final reading of 98.5. Investing.com had forecast 97.9.

Since its beginning in 1978, consumer sentiment is 11.9 percent above the average reading (arithmetic mean) and 13.2 percent above the geometric mean. The current index level is at the 81st percentile of the 470 monthly data points in this series.

The latest sentiment number puts us 26.4 points above the average recession mindset and 8.0 points below the non-recession average.

By Jill Mislinski

The University of Michigan Preliminary Consumer Sentiment for February came in at 95.7, down from the January Final reading of 98.5. Investing.com had forecast 97.9.

Surveys of Consumers chief economist, Richard Curtin, makes the following comments:

Consumer confidence retreated from the decade-peak recorded in January, with the decline centered in the Expectations Index. To be sure, confidence remains quite favorable, with only five higher readings in the past decade. Importantly, the data do not reflect any closing of the partisan divide. The Michigan survey includes several free-response questions which ask respondents to answer in their own words, without any prompting or proposed answer categories. When asked to describe any recent news that they had heard about the economy, 30% spontaneously mentioned some favorable aspect of Trump’s policies, and 29% unfavorably referred to Trump’s economic policies. Thus a total of nearly six-in-ten consumers made a positive or negative mention of government policies. In the long history of the surveys, this total had never reached even half that amount, except for five surveys in 2013 and 2014 that were solely dominated by negative references to the debt and fiscal cliff crises. Moreover, never before have these spontaneous references to economic policies had such a large impact on the Sentiment Index: a difference of 37 Index points between those that referred to favorable and unfavorable policies. These differences are troublesome: the Democrat’s Expectations Index is close to its historic low (indicating recession) and the Republican’s Expectations Index is near its historic high (indicating expansion). While currently distorted by partisanship, the best bet is that the gap will narrow to match a more moderate pace of growth. Nonetheless, it has been long known that negative rather than positive expectations are more influential in determining spending, so forecasts of consumer expenditures must take into account a higher likelihood of asymmetric downside risks. [More...]

See the chart below for a long-term perspective on this widely watched indicator. Recessions and real GDP are included to help us 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 11.9 percent above the average reading (arithmetic mean) and 13.2 percent above the geometric mean. The current index level is at the 81st percentile of the 470 monthly data points in this series.

The Michigan average since its inception is 85.5. During non-recessionary years the average is 87.7. The average during the five recessions is 69.3. So the latest sentiment number puts us 26.4 points above the average recession mindset and 8.0 points below the non-recession average.

Note that this indicator is somewhat volatile, with a 3.0 point absolute average monthly change. The latest data point saw a 2.8 point change from the previous month. 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 general trend in the Michigan Sentiment Index since the Financial Crisis lows has been one of slow improvement.The survey findings since December 2015 saw gradual decline followed by a bounceback later in the year with its interim peak in January of 2017.

As seen first on Advisor Perspectives

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