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Michigan Consumer Sentiment Index: An Upside Surprise

May 13, 2011

The University of Michigan Consumer Sentiment Index preliminary report for May came in at 72.4, an improvement over the April final of 69.8. The consensus expectation had been for 69.5 and’s own forecast was for 70.5. The rise in gasoline prices, often a drag on sentiment, apparently hasn’t taken a toll on the mood of the consumer.

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 Michigan Consumer Sentiment Index as an indicator of the broader economy.

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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 17% below the regression line on the chart above. The current index level is at the 19th percentile of the 401 monthly data points in this series.

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.

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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).

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Consumer and small business sentiment remains at or near levels associated with other recent recessions, but the trend has been one of general improvement.

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