Michigan Consumer Sentiment: November Preliminary Mostly Unchanged

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1 Michigan Consumer Sentiment: November Preliminary Mostly Unchanged November 9, 2018 by Jill Mislinski of Advisor Perspectives The University of Michigan Preliminary Consumer Sentiment for November came in at 98.3, down 0.3 from the October Final reading. Investing.com had forecast Surveys of Consumers chief economist, Richard Curtin, makes the following comments: Consumer sentiment remained virtually unchanged in early November from its October reading. Importantly, interviewing went through Wednesday night so there was only a one-day overlap after the mid-term election results were known by consumers. Those few cases held expectations that were identical with the data collected earlier in the month, which is not so surprising given that the split between the House and Senate was widely anticipated. The unchanged data meant that the Sentiment Index remained higher thus far in 2018 (98.4) than in any prior year since The stability of consumer sentiment at high levels acts to mask some important underlying shifts. Income expectations have improved and consumers anticipate continued robust growth in employment, but consumers also anticipate rising inflation and higher interest rates. While these positive and negative changes act to offset each other in the aggregate, younger consumers have benefited most from more positive income trends and older consumers are more likely to complain about the erosion of their living standards due to rising prices; rising interest rates weigh heavily on younger consumers who are more likely to borrow, and older consumers are more likely to benefit from higher returns on their savings. The renewed strength in nominal income expectations is critical to overall spending prospects. Among the working age population, those between the ages of 25 and 54, the anticipated annual gain in nominal household income was 3.6% in November, the best in the past decade (see the chart). [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. Page 1, 2018 Advisor Perspectives, Inc. All rights reserved.

2 To put today's report into the larger historical context since its beginning in 1978, consumer sentiment is 14.2 percent above the average reading (arithmetic mean) and 15.6 percent above the geometric mean. The current index level is at the 88th percentile of the 491 monthly data points in this series. Note that this indicator is somewhat volatile, with a 3.0 point absolute average monthly change. The latest data point saw a 0.3 percent change 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. Page 2, 2018 Advisor Perspectives, Inc. All rights reserved.

3 For the sake of comparison, here is a chart of the Conference Board's Consumer Confidence Index (monthly update here). 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. Page 3, 2018 Advisor Perspectives, Inc. All rights reserved.

4 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). Page 4, 2018 Advisor Perspectives, Inc. All rights reserved.

5 The general trend in the Michigan Sentiment Index since the Financial Crisis lows was one of slow improvement. The survey findings saw a jump in late 2016 with improvements that have continued through the present. The next update to this report will be for the November final data and will be published November 21. Page 5, 2018 Advisor Perspectives, Inc. All rights reserved.