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Michigan Consumer Sentiment: The Summer Blues…

  • Written by Syndicated Publisher No Comments Comments
    July 14, 2012

    The University of Michigan Consumer Sentiment Index preliminary number for June came in at 72.0, a 1.2 point drop from the June final and a whopping 7.3 point decline from May. We’ve apparently got a case of the summer blues on our hands. Today’s number was below the Briefing.com’s consensus forecast of 73.5.

    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 16% below the average reading (arithmetic mean), 15% below the geometric mean, and 15% below the regression line on the chart above. The current index level is at the 19.5 percentile of the 415 monthly data points in this series.

    The Michigan average since its inception is 85.0. During non-recessionary years the average is 88.0. The average during the five recessions is 69.3. So the latest sentiment number of 72.0 puts us well below the midpoint (78.7) between recessionary and non-recessionary sentiment averages. In fact, we’re just a tad above the recession 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 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).

    The trend in sentiment since the Financial Crisis lows had been one of slow improvement, but it topped out in February of last year at 77.5 and plunged to an interim low of 55.7 in August. The steady rise since the August trough had been encouraging. But today’s report continues to suggest a trend reversal.

    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.
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