Michigan Consumer Sentiment: December Preliminary Recedes Slightly

The University of Michigan Preliminary Consumer Sentiment for December came in at 96.8, down 1.7 from the November Final reading of 98.5. Investing.com had forecast 99.2.

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

Consumer sentiment has remained quite favorable although it continued to slowly recede in early December from its October cyclical peak. Most of the recent decline was concentrated in the long-term prospects for the economy, while consumers thought current economic conditions have continued to improve. Importantly, the largest decline in long-term economic prospects was recorded among Democrats, which reflected their concerns about the impact of the proposed changes in taxes. Perhaps the most important changes in early December were higher income expectations as well as a higher expected inflation rate in 2018. Income gains have been slowly improving during the past year, and the data indicate that trend has continued. In contrast, the rise in inflation expectations in early December was a surprise, and confidence in this finding must await confirmation in the months ahead before any inferences are drawn. Buying plans for durables have improved in early December, largely due to attractive pricing, in contrast to the rise in the expected inflation rate. Overall, the data signal an expected gain of 2.7% in real consumption expenditures in 2018. [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 12.9 percent above the average reading (arithmetic mean) and 14.2 percent above the geometric mean. The current index level is at the 84th percentile of the 480 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 27.5 points above the average recession mindset and 8.9 points above the non-recession average.