Michigan Consumer Sentiment Prelim See Small Loss in January

The January Preliminary Report came in at 68.8, down 1.8 (2.5%) from the December Final. Investing.com had forecast 70.0. Since its beginning in 1978, consumer sentiment is 20 percent below the average reading (arithmetic mean) and 19.1 percent below the geometric mean.

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

Sentiment posted a small loss in early January (-2.5%), falling to the second lowest level in a decade, which was recorded in November (67.4). The Sentiment Index has averaged just 70.3 in the past six months, whereas in the first six months of 2021 it averaged 82.9. While the Delta and Omicron variants certainly contributed to this downward shift, the decline was also due to an escalating inflation rate. Three-quarters of consumers in early January ranked inflation, compared with unemployment, as the more serious problem facing the nation. Given that inflation's impact is regressive, the Sentiment Index fell by 9.4% among households with total incomes below $100,000 in early January, but rose by 5.7% among households with incomes over that amount. The same split was observed for prospects for the national economy, with lower income households more negative, and higher income households holding a more positive outlook. Even among the more optimistic, they are still more likely to anticipate bad rather than good economic times in the year ahead. Importantly, confidence in government economic policies is at its lowest level since 2014. It will be a difficult task to gauge the appropriate mix of fiscal and monetary policies when such fine-tuning is necessary in an era of large economic and non-economic disruptions. The most crucial and difficult task will be defusing the developing wage-price spiral. [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.