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Friday, January 27, 2023

Michigan Consumer Sentiment Gains 4% In December, Beats Forecast

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By Jill Mislinski

The December Preliminary Report came in at 56.8, down 3.1 (5.2%) from the November Final. Investing.com had forecast 56.9. Since its beginning in 1978, consumer sentiment is 31 percent below the average reading (arithmetic mean) and 30 percent below the geometric mean.

Surveys of Consumers chief economist, Richard Curtin, makes the following comments:

Consumer sentiment rose 4% above November, recovering most of the losses from November but remaining low from a historical perspective. All components of the index lifted, with one-year business conditions surging 14% and long-term business conditions increasing a more modest 6%. Gains in the sentiment index were seen across multiple demographic groups, with particularly large increases for higher-income families and those with larger stock holdings, supported by recent rises in financial markets. Sentiment for Democrats and Independents rose 12% and 7%, respectively, while for Republicans, it fell 6%. Throughout the survey, concerns over high prices-which remain high relative to just prior to this current inflationary episode-have eased modestly.

Year-ahead inflation expectations improved considerably but remained relatively high, falling from 4.9% to 4.6% in December, the lowest reading in 15 months but still well above 2 years ago. Declines in short-run inflation expectations were visible across the distribution of age, income, education, as well as political party identification. At 3.0%, long run inflation expectations has stayed within the narrow (albeit elevated) 2.9-3.1% range for 16 of the last 17 months. [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. Michigan Consumer Sentiment To put today’s report into the larger historical context since its beginning in 1978, consumer sentiment is 31 percent below the average reading (arithmetic mean) and 30 percent below the geometric mean. The current index level is at the 3rd percentile of the 540 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 2.3 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.

3-Month Moving Average

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.

Consumer Confidence

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).

NFIB Optimism

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Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.

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