Consumer sentiment fell to a 6-month low in May according to the preliminary report for the Michigan Consumer Sentiment Index. The index fell 9.8 points (-12.7%) to 67.4 from the April final. The latest reading was below the forecast of 76.0.
The Michigan Consumer Sentiment Index is a monthly survey of consumer confidence levels in the U.S. with regards to the economy, personal finances, business conditions, and buying conditions, conducted by the University of Michigan. There are two reports released each month; a preliminary report released mid-month and a final report released at the end of the month.
Joanne Hsu, the director of surveys, made the following comments:
Consumer sentiment retreated about 13% this May following three consecutive months of very little change. This 10 index-point decline is statistically significant and brings sentiment to its lowest reading in about six months. This month’s trend in sentiment is characterized by a broad consensus across consumers, with decreases across age, income, and education groups. Consumers in western states exhibited a particularly steep drop. While consumers had been reserving judgment for the past few months, they now perceive negative developments on a number of dimensions. They expressed worries that inflation, unemployment and interest rates may all be moving in an unfavorable direction in the year ahead.
Year-ahead inflation expectations rose from 3.2% last month to 3.5% this month, remaining above the 2.3-3.0% range seen in the two years prior to the pandemic. Long-run inflation expectations inched up, from 3.0% last month to 3.1% this month. Although they have been within the narrow 2.9-3.1% range for 30 of the last 34 months, long-run inflation expectations remain elevated relative to the 2.2-2.6% range seen in the two years pre-pandemic. [More...]
See the chart below for a long-term perspective on this widely watched indicator. We've highlighted the value of the index at the start of each recession and also included a callout to the most recent 12 months. The current level of 67.4 is below the index's level at the start of 5 of the 6 recessions since the index's inception.
To put today's report into the larger historical context, since its beginning in 1978, consumer sentiment is 20.6% below its average reading (arithmetic mean) of 84.9 and 19.6% below its geometric mean of 83.8. The current index level is at the 13th percentile of the 557 monthly data points in this series.
This indicator is somewhat volatile, with a 3.1 point absolute average monthly change. The latest data point saw a 9.8 point decrease from the previous month. Notably, each of the past three months the index has moved within its 3.1 point range, underscoring consumers' sentiment since the start of 2024.
For a visual sense of the volatility, here is a chart with the monthly data and a three-month moving average. The bottom half of the chart shows real GDP to help us evaluate the correlation between the Michigan Consumer Sentiment Index and the broader economy.
Other Sentiment Indicators
For an additional perspective on consumer attitudes, see the most recent Conference Board's Consumer Confidence Index. Both indexes gauge consumer attitudes toward the current and future strength of the economy. However, the Consumer Confidence Index is more influenced by employment and labor market conditions while the Michigan Sentiment Index is more focused on household finances and the impact of inflation.
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 next update to this report will be published on May 24th.
ETFs associated with sentiment include: Consumer Discretionary Select Sector SPDR Fund (XLY).
Read more updates by Jen Nash
