Michigan Consumer Sentiment: June Preliminary Better Than Expected

Economy recessionJill Mislinski:  The University of Michigan Final Consumer Sentiment for May came in at 94.3, a 0.4 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 early June due to increased concerns about future economic prospects. The recent data magnified the growing gap between the most favorable assessments of Current Economic Conditions since July 2005, and renewed downward drift of the Expectations Index, which fell by a rather modest 8.6% from the January 2015 peak. The strength recorded in early June was in personal finances, and the weaknesses were in expectations for continued growth in the national economy. Consumers rated their current financial situation at the best levels since the 2007 cyclical peak largely due to wage gains. Prospects for gains in inflation-adjusted incomes in the year ahead were also the most favorable since the 2007 peak, enabled by record low inflation expectations. On the negative side of the ledger, consumers do not think the economy is as strong as it was last year nor do they anticipate the economy will enjoy the same financial health in the year ahead as they anticipated a year ago. A sustained reduction in the pace of job creation could prompt consumers to hold down spending to increase their precautionary savings. Overall, the data still indicate that real 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.

Michigan Consumer Sentiment

To put today’s report into the larger historical context since its beginning in 1978, consumer sentiment is 10.4 percent above the average reading (arithmetic mean) and 11.7 percent above the geometric mean. The current index level is at the 76th 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 25.0 points above the average recession mindset and 6.7 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 0.4 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.

3-Month Moving Average

For the sake of comparison, here is a chart of the Conference Board’s Consumer Confidence Index (monthly update here).

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