Michigan Consumer Sentiment: August Prelim Drops 13%

The August Preliminary came in at 70.2, down 11.0 (13%) from the July Final. Investing.com had forecast 81.2. Since its beginning in 1978, consumer sentiment is 18.5 percent below the average reading (arithmetic mean) and 17.6 percent below the geometric mean.

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

Consumers reported a stunning loss of confidence in the first half of August. The Consumer Sentiment Index fell by 13.5% from July, to a level that was just below the April 2020 low of 71.8. Over the past half century, the Sentiment Index has only recorded larger losses in six other surveys, all connected to sudden negative changes in the economy: the only larger declines in the Sentiment Index occurred during the economy's shutdown in April 2020 (-19.4%) and at the depths of the Great Recession in October 2008 (-18.1%). The losses in early August were widespread across income, age, and education subgroups and observed across all regions. Moreover, the loses covered all aspects of the economy, from personal finances to prospects for the economy, including inflation and unemployment. There is little doubt that the pandemic's resurgence due to the Delta variant has been met with a mixture of reason and emotion. Consumers have correctly reasoned that the economy's performance will be diminished over the next several months, but the extraordinary surge in negative economic assessments also reflects an emotional response, mainly from dashed hopes that the pandemic would soon end. In the months ahead, it is likely that consumers will again voice more reasonable expectations, and with control of the Delta variant, shift toward outright optimism. Consumers' reaction to Delta's modestly higher precautionary measures indicates the difficulty of producing optimal policy responses. [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 18.5 percent below the average reading (arithmetic mean) and 17.6 percent above the geometric mean. The current index level is at the 13th percentile of the 524 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 an 11.0 point decrease 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).