Consumer sentiment soared in December, erasing all declines from the past four months, according to the preliminary report for the Michigan Consumer Sentiment Index. The index came in at 69.4, up 8.1 (13.2%) from the November final. This morning's reading was above the forecast of 62.0.
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 soared 13% in December, erasing all declines from the previous four months, primarily on the basis of improvements in the expected trajectory of inflation. Sentiment is now about 39% above the all-time low measured in June of 2022 but still well below pre-pandemic levels. All five index components rose this month, led by surges of over 24% for both the short and long-run outlook for business conditions. There was a broad consensus of improved sentiment across age, income, education, geography, and political identification. A growing share of consumers—about 14%—spontaneously mentioned the potential impact of next year’s elections. Sentiment for these consumers appears to incorporate expectations that the elections will likely yield results favorable to the economy.
Year-ahead inflation expectations plunged from 4.5% last month to 3.1% this month. The current reading is the lowest since March 2021 and sits just above the 2.3-3.0% range seen in the two years prior to the pandemic. Long-run inflation expectations fell from 3.2% last month to 2.8% this month, matching the second lowest reading seen since July 2021. 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 69.4 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 18.3% below its average reading (arithmetic mean) of 85.0 and 17.3% below its geometric mean of 83.9. The current index level is at the 16th percentile of the 552 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 8.1 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 December 22nd.
ETFs associated with sentiment include: Consumer Discretionary Select Sector SPDR Fund (XLY).
More Economic Insights Topics >
