Michigan Consumer Sentiment Improves To Highest Since Early 2008

Consumer sentiment may be showing the effects of the lessened declines recently logged by overall employment. The University of Michigan's September reading of consumer sentiment rose to 73.5 from the mid-month reading of 70.2 and it was up by nearly one-third from the low last Fall. Consensus expectations had been for a September reading of 70.5. During the last ten years, there has been a 69% correlation between the level of sentiment and the growth in real consumer spending during the next five months.

The expectations component of the sentiment index rose the most this month with a 13.1% gain after a 2.8% August rise. Expected business conditions during the next year jumped 27.5% (35.4% y/y) to their highest in two years and expectations for conditions during the next five years rose 13.7% (9.6% y/y). Expectations for personal finances rose a lesser 3.6% and remained down from last year. Inflation expectations for the next year fell sharply to 2.8% which was the lowest level since March. That compares to a low of 1.7% last December but remained down from a reading which was as high as 7.0% during May of last year.

The reading of current economic conditions made up the declines during the prior two months with a 10.2% increase. The reading of current personal finances made up all of the August decline with a 19.0% increase but that left it sharply below the year ago level as employment & income remained down. In fact, the reading remained near the record low. Also within the current conditions index was an increase in perceived buying conditions for large household goods that made up declines during the prior two months. (+12.1% y/y).

The opinion of government policy, which may eventually influence economic expectations, made up the August decline but remained near the  lowest level since February. Thirty one percent of respondents thought that a poor job was being done by government while 23% thought that a good job was being done.

The University of Michigan survey data is not seasonally adjusted. The reading is based on telephone interviews with about 500 households at month-end; the mid-month results are based on about 300 interviews. The summary indexes are in Haver's USECON database with details in the proprietary UMSCA database.