Michigan Consumer Sentiment: July Preliminary Down

The July Preliminary came in at 73.2, down 4.9 from the June Final. Investing.com had forecast 79.0.

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

Consumer sentiment retreated in the first half of July due to the widespread resurgence of the coronavirus. The promising gain recorded in June was reversed, leaving the Sentiment Index in early July insignificantly above the April low (+1.4 points). Following the steepest two-month decline on record, it is not surprising that consumers need some time to reassess the likely economic impact from the coronavirus on their personal finances and on the overall economy. Unfortunately, declines are more likely in the months ahead as the coronavirus spreads and causes continued economic harm, social disruptions, and permanent scarring. Another aggressive fiscal response is urgently needed that focuses on financial relief for households as well as state and local governments. While financial relief is clearly needed for the most vulnerable households, that relief will not stimulate the extent of renewed consumer spending necessary to restore employment and income to pre-crisis levels anytime soon. No single policy could provide financial relief and stimulate economic growth, and without both, neither one could be ultimately successful. Unfortunately, there is little time left on the political calendar for Congress to act as the election season is about to begin in earnest. Without action, another plunge in confidence and a longer recession is likely to occur. [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 Friday's report into the larger historical context since its beginning in 1978, consumer sentiment is 15.2 percent below the average reading (arithmetic mean) and 14.2 percent below the geometric mean. The current index level is at the 18th percentile of the 511 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 4.9 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).

The next update to this report will be published on July 31.