Michigan Consumer Sentiment: October Final Slips

Transcription

1 Michigan Consumer Sentiment: October Final Slips October 26, 2018 by Jill Mislinski of Advisor Perspectives The University of Michigan Final Consumer Sentiment for October came in at 98.6, down 1.5 from the September Final reading. Investing.com had forecast Surveys of Consumers chief economist, Richard Curtin, makes the following comments: The Consumer Sentiment Index has been higher thus far in 2018 (98.5) than in any prior year since 2000, which was the last year of the longest expansion since the mid-1800s. Importantly, stock price declines, rising inflation and interest rates, and the negative mid-term election campaigns, have not acted to undermine consumer confidence. Needless to say, consumers are not immune to these negative factors. The data only indicate that the tipping point toward escalating pessimism has not been reached. This resilience was primarily due to the prevailing belief that the economy would produce robust job growth during the year ahead, even if overall wage growth remained dismal. Consumers now place a higher value on job security compared with wage growth due to job losses in the Great Recession as well as the aging of the labor force. The accompanying chart shows trends in references to employment when consumers were asked to identify what economic news they had recently heard along with trends in the annual percentage change in total non-farm employment. Consumers' reports have become more volatile and have exceeded actual job growth in recent years, whereas before 1980 consumers regularly underestimated the strength in the labor market. This may reflect the heightened attention accorded to every waver in job news in the current environment, while before 1980, job growth was the accepted norm and consumers were more sensitive to real wage growth. The pace of growth in real personal consumption can be expected to average 2.6% during late 2018 and into the first half of Increases in home and vehicle prices, rising interest rates, and decreases in the pace of growth in inflation-adjusted incomes have especially dimmed prospects for home and vehicle sales. [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 14.6 percent above the average reading (arithmetic mean) and 16.0 percent above the geometric mean. The current index level is at the 88th percentile of the 490 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 1.5 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 preliminary data and will be published November 9. Page 5, 2018 Advisor Perspectives, Inc. All rights reserved.