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Michigan Consumer Sentiment: 4th Worst on Record

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    August 28, 2011

    The University of Michigan Consumer Sentiment Index final report for August came in at 55.7, a slight improvement over the 54.9 preliminary reading August 12, but this is the 4th lowest monthly final since the inception on the series in 1798. TheBriefing.com consensus expectation was for 55.8. The two lowest months (52.7 and 51.7) were at the depths of the 1980 recession, and the third lowest was in November 2008 during somes of the darkest days of the Financial Crisis.

    See the chart below for a long-term perspective on this widely watched index. Because the sentiment index has trended upward since its inception in 1978, I’ve added a linear regression to help understand the pattern of reversion to the trend. I’ve also highlighted recessions and included real GDP to help evaluate the correlation between the Michigan Consumer Sentiment Index and the broader economy.



    To put today’s report into the larger historical context since its beginning in 1978, consumer sentiment is about 35% below the average reading (arithmetic mean), 34% below the geometric mean, and 36% below the regression line on the chart above. The current index level is at the 0.7 [!] percentile of the 404 monthly data points in this series.

    The Michigan average over since its inception is 85.8. During non-recessionary years the average is 88.5. The average during the five recessions is 69.3.

    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 general pattern and trend are 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).



    Consumer and small business sentiment remains at levels associated with other recent recessions. The trend in sentiment since the Financial Crisis lows has been one of slow improvement. The August final numbers from the Michigan survey are constent with deep recessions.

    Images: Flickr (licence attribution)

    About The Author

    My original dshort.com website was launched in February 2005 using a domain name based on my real name, Doug Short. I’m a formerly retired first wave boomer with a Ph.D. in English from Duke. Now my website has been acquired byAdvisor Perspectives, where I have been appointed the Vice President of Research.

    My first career was a faculty position at North Carolina State University, where I achieved the rank of Full Professor in 1983. During the early ’80s I got hooked on academic uses of microcomputers for research and instruction. In 1983, I co-directed the Sixth International Conference on Computers and the Humanities. An IBM executive who attended the conference made me a job offer I couldn’t refuse.

    Thus began my new career as a Higher Education Consultant for IBM — an ambassador for Information Technology to major universities around the country. After 12 years with Big Blue, I grew tired of the constant travel and left for a series of IT management positions in the Research Triangle area of North Carolina. I concluded my IT career managing the group responsible for email and research databases at GlaxoSmithKline until my retirement in 2006.

    Contrary to what many visitors assume based on my last name, I’m not a bearish short seller. It’s true that some of my content has been a bit pessimistic in recent years. But I believe this is a result of economic realities and not a personal bias. For the record, my efforts to educate others about bear markets date from November 2007, as this Motley Fool article attests.