The September final report for the Michigan Consumer Sentiment Index came in at 68.1, down 1.4 (-2.0%) from the August final. This morning's reading was above the forecast of 67.7.
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 confirmed its early-month reading and was little changed this month, slipping a mere 1.4 index points from August and remaining 16% higher than a year ago. A small decline in consumer expectations over their personal finances was offset by a modest improvement in expected business conditions. Consumers are understandably unsure about the trajectory of the economy given multiple sources of uncertainty, for example over the possible shutdown of the federal government and labor disputes in the auto industry. Until more information emerges about these developments, though, consumers have reserved judgement on whether economic conditions have materially changed from the past few months.
Year-ahead inflation expectations moderated from 3.5% last month to 3.2% this month. The current reading is the lowest since March 2021 and is above the 2.3-3.0% range seen in the two years prior to the pandemic. Long-run inflation expectations came in at 2.8%, falling below the narrow 2.9-3.1% range for only the second time in the last 26 months. In comparison, long-run inflation expectations ranged between 2.2 and 2.6% 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 68.1 is below the index's level at the start of five of the six recessions since the index's inception.
To put today's report into the larger historical context, since its beginning in 1978, consumer sentiment is 20.0% below its average reading (arithmetic mean) of 85.1 and 18.9% below its geometric mean of 84.0. The current index level is at the 14th percentile of the 549 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 1.4 point decrease 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. 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 October 13.
ETFs associated with sentiment include: Consumer Discretionary Select Sector SPDR Fund (XLY).
This article was originally written by Doug Short. From 2016-2022, it was maintained by Jill Mislinski. Starting in January 2023, AP Charts pages will be maintained by Jennifer Nash at VettaFi | Advisor Perspectives
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