Courtesy of Doug Short’s Advisor Perspectives.
The University of Michigan Final Consumer Sentiment for May came in at 93.5, a 1.2 point decrease from the 94.7 May Final reading. Investing.com had forecast 94.0.
Surveys of Consumers chief economist, Richard Curtin, makes the following comments:
Consumers were a bit less optimistic in late June due to rising concerns about prospects for the national economy. While no recession is anticipated, consumers increasingly expect a slower pace of economic growth in the year ahead. Importantly, the persistent strength in personal finances will keep the level of consumer spending at relatively high levels and continue to support an uninterrupted economic expansion. Over the past 18 months, the Sentiment Index has shown only minor fluctuations about a very positive trend, with the June 2016 level a bit higher than the overall average (93.5 vs. 92.6). This relative stability stands in sharp contrast to the much more volatile path of GDP. The stability in the overall Sentiment Index reflects a gradual improvement in assessments of current conditions being offset by a downward drift in the economic prospects. The Current Conditions Index reached in the June survey its highest level since January of 2007, while the Expectations Index declined a modest 9.5% from its January 2015 peak. Although the data are consistent with GDP growth falling slightly below 2.0% in 2016, real consumer spending 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 9.5 percent above the average reading (arithmetic mean) and 10.8 percent above the geometric mean. The current index level is at the 72nd percentile of the 462 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 24.2 points above the average recession mindset and 5.9 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 1.2 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 January 2015 remaining the interim peak.
