Consumer Sentiment Surges to Highest Level in 13 Years

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The University of Michigan Preliminary Consumer Sentiment for October came in at 101.1, up 6.0 from the September Final reading of 95.1 and its highest since 2004. Investing.com had forecast 95.1.

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

Consumer sentiment surged in early October, reaching its highest level since the start of 2004. The October gain was broadly shared, occurring among all age and income subgroups and across all partisan viewpoints. The data indicate a robust outlook for consumer spending that extends the current expansion to at least mid 2018, which would mark the 2nd longest expansion since the mid 1800's. While the early October surge indicates greater optimism about the future course of the economy, it also reflects an unmistakable sense among consumers that economic prospects are now about as good as could be expected. This "as good as it gets" outlook is supported by a moderation in the expected pace of growth in both personal finances and the overall economy, accompanied by a growing sense that, even with this moderation, it would still mean the continuation of good economic times. Although such an outlook is typically recorded in the late phase of an expansion, its occurrence is independent of the ultimate length of an expansion. Indeed, nothing in the latest survey indicates that consumers anticipate an economic downturn anytime soon - which contrarians may consider a clear warning sign of trouble ahead. Nonetheless, consumers anticipate low unemployment, low inflation, small increases in interest rates, and most importantly, modest income gains in the year ahead. It is this acceptance of lackluster growth rates in personal income and in the overall economy that signifies that consumers have accepted, however reluctantly, limits on the pace of improving prospects for living standards. [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.

consumer sentiment

To put today's report into the larger historical context since its beginning in 1978, consumer sentiment is 17.9 percent above the average reading (arithmetic mean) and 19.3 percent above the geometric mean. The current index level is at the 91st percentile of the 478 monthly data points in this series.

The Michigan average since its inception is 85.6. During non-recessionary years the average is 87.8. The average during the five recessions is 69.3. So the latest sentiment number puts us 31.8 points above the average recession mindset and 13.2 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 saw a 6.0 percent 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.

consumer sentiment gdp

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.

conference board confidence

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).

nfib small business

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 and is currently at an interim peak.

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About Jill Mislinski

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