Michigan Consumer Sentiment: Continued Improvement in August

The August Final Report came in at 58.2, up 6.7 (13.0%) from the July Final. Investing.com had forecast 54.9. Since its beginning in 1978, consumer sentiment is 32 percent below the average reading (arithmetic mean) and 31.2 percent below the geometric mean.

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

The final August reading continued the early month improvement in consumer sentiment, rising 13.0% above July but remaining 17% below a year ago. Most of this increase was concentrated in expectations, with a 59% surge in the year-ahead outlook for the economy following two months at its lowest reading since the Great Recession (see chart). In addition, personal financial expectations rose 12% since July. The gains in sentiment were seen across age, education, income, region, and political affiliation, and can be attributed to the recent deceleration in inflation. Lower-income consumers, who have fewer resources to buffer against inflation, posted particularly large gains on all index components. Their sentiment now even exceeds that of higher-income consumers, when it typically lags higher-income sentiment by over 15 points. Hopefully this tentative improvement will continue, as overall sentiment remains extremely low by historical standards.

The relative relief felt by consumers reflected in their inflation expectations. The median expected year-ahead inflation rate was 4.8%, down from 5.2% last month and its lowest reading in 8 months. Uncertainty over expectations rose considerably, particularly among lower-educated consumers. Long run expectations came in at 2.9%, remaining within the 2.9-3.1% range seen in the past year. [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.