Michigan Consumer Sentiment: August Final Remains Low

Transcription

1 Michigan Consumer Sentiment: August Final Remains Low August 31, 2018 by Jill Mislinski of Advisor Perspectives The University of Michigan Final Consumer Sentiment for August came in at 96.2, down 1.7 from the July Final reading. Investing.com had forecast Surveys of Consumers chief economist, Richard Curtin, makes the following comments: Although there was a small uptick in late August, consumer sentiment remained at its lowest level since January. Most of the August decline was in the Current Economic Conditions Index, which fell to its lowest level since November These results stand in sharp contrast to the recent very favorable report on growth in the national economy. The dominating weakness was related to less favorable assessments of buying conditions, mainly due to less favorable perceptions of market prices and to a lesser extent, rising interest rates. Future income and job certainty have become the main reasons cited by consumers for their positive spending views (see the chart). This shift from attractive prices and interest rates to income is typical of the later stages of expansions, with references to income and job certainty peaking just before downturns. While nominal wage expectations and employment gains have remained strong, the anticipated inflation rate has also increased to its highest level in four years. Although a higher inflation rate is partly due to the potential for increased tariffs, the main cause has been the expectation of robust economic growth. Luckily, consumers have not yet judged the current rate of inflation as a significant source of erosion in their living standards or as a cause to reduce their buying plans. Achieving a soft-landing is always difficult, and especially so when monetary policy must lean against expansionary fiscal policies. Personal consumption can be expected to grow by 2.6% in the year ahead. [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 11.9 percent above the average reading (arithmetic mean) and 13.2 percent above the geometric mean. The current index level is at the 82nd percentile of the 488 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 1.7 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 September preliminary data and will be published September 14. Page 5, 2018 Advisor Perspectives, Inc. All rights reserved.