Warning: Michigan Consumer Sentiment Slips in April

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The University of Michigan Preliminary Consumer Sentiment for April came in at 97.8, down 3.6 from the March Final reading of 101.4. Investing.com had forecast 100.6.

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

Consumer sentiment slipped in early April, largely reversing the gains recorded in the prior two months. The small decline was widely shared by all age and income subgroups and across all regions of the country. Importantly, confidence still remains relatively high, despite the recent losses that were mainly due to concerns about the potential impact of Trump’s trade policies on the domestic economy. Uncertainty surrounding the evolving trade policy has caused many small (and at times inconsistent) changes in expectations. Spontaneous references to trade policies were made by 29% of all consumers in early April, with nearly all the mentions negative (27% out of 29%). The Expectations Index was just 64.2 among those who made negative comments about trade policies, while among those who made no mention of trade policies, the Expectations Index was 93.9, a substantial difference. Consumers who negatively mentioned trade policies also anticipated that the year-ahead inflation rate would be 0.4 percentage points higher than among those who did not spontaneously mention Trump’s trade policies; there was a differential of 0.2 percentage points for long term inflation expectations. There were other factors responsible for the small overall April decline, the most important was the expectation of rising interest rates, which slightly slowed the anticipated pace of growth in the economy. Overall, the data are consistent with a growth rate of 2.7% in consumption from mid-2018 to mid-2019. [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.

To put today’s report into the larger historical context since its beginning in 1978, consumer sentiment is 13.9 percent above the average reading (arithmetic mean) and 15.2 percent above the geometric mean. The current index level is at the 87th percentile of the 484 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 3.6 percent change 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.

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.

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 general trend in the Michigan Sentiment Index since the Financial Crisis lows was one of slow improvement. The survey findings saw a jump in late 2016 with improvements that have continued through the present.

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