Consumer sentiment continued to rise, according to the final November report for the Michigan Consumer Sentiment Index. The index rose 1.3 points (1.3%) from October's final reading to 71.8. The latest reading was below the forecast of 73.0.
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 was little changed this month, inching up 1.3 index points from October. In November, sentiment extended a four-month stretch of consecutive incremental increases. Post-election interviews were 1.3 points below the pre-election reading, moderating the improvement seen earlier in the month. Overall, the stability of national sentiment this month obscures discordant partisan patterns. In a mirror image of November 2020 (see chart), the expectations index surged for Republicans and fell for Democrats this month, a reflection of the two groups’ incongruous views of how Trump’s policies will influence the economy. In contrast, current conditions saw insignificant changes this month across the political spectrum, consistent with the fact that the resolution of the election exerted little immediate impact on the current state of the economy. Ultimately, substantial uncertainty remains over the future implementation of Trump’s economic agenda, and consumers will continue to re-calibrate their views in the months ahead.
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 71.8 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 15.3% below its average reading (arithmetic mean) of 84.7 and 14.1% below its geometric mean of 83.6. The current index level is at the 20th percentile of the 563 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 1.3 point increase 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 6th.
ETFs associated with sentiment include: Consumer Discretionary Select Sector SPDR Fund (XLY).
Read more updates by Jen Nash
