Courtesy of Doug Short’s Advisor Perspectives.
The University of Michigan Final Consumer Sentiment for May came in at 94.7, it’s highest reading in nearly a year and a 5.7 point increase from the 89.0 April Final reading. This is its largest increase since 2013. Investing.com had forecast 95.4.
Surveys of Consumers chief economist, Richard Curtin, makes the following comments:
Consumers were a bit less optimistic in late May than earlier in the month, but sentiment was still substantially higher than last month. Indeed, there have only been four prior months since the January 2007 peak in which the Sentiment Index was higher than in May 2016, all recorded at the start of 2015. Despite the meager GDP growth as well as a higher inflation rate, consumers became more optimistic about their financial prospects and anticipated a somewhat lower inflation rate in the years ahead. Positive views toward vehicle and home sales also posted gains in May largely due to low interest rates. The biggest uncertainty consumers see on the horizon is not whether the Fed will hike interest rates in the next few months, but the outlook for future government economic policies under a new president. This has increased their emphasis on maintaining precautionary savings, although the savings rate is not expected to increase much beyond its current level. Although small stock gains are anticipated, household wealth is more likely to benefit from rising home prices, with gains now more frequent than in a decade. Overall, the data indicate that inflation-adjusted consumer expenditures can be expected to rise by 2.5% in 2016 and 2.7% in 2017. [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 10.9 percent above the average reading (arithmetic mean) and 12.2 percent above the geometric mean. The current index level is at the 77th percentile of the 461 monthly data points in this series.
The Michigan average since its inception is 85.4. 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 25.4 points above the average recession mindset and 7.1 points above the non-recession average.
Note that this indicator is somewhat volatile, with a 3.0 point absolute average monthly change. The latest data point was a 5.7 point change from the previous month, its largest jump since May of 2013. 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 January 2015 remaining the interim peak.
