Main takeaways:
  • Preliminary Michigan Sentiment in January at 93.3, up 0.7 points from December.
  • Sentiment rebounded sharply from Sep/15 low.
  • The recovery in Oct/Dec was led by poor households ("felling better about current situation"), contrasting with concerns among rich households ("worried about the future").
  • January was the first month in which the increase in Sentiment was led by the rich ("all the gain was recorded among households with income above $75k")...
  • ...despite they being aware of the stock price declines and weak global economy.
  • Current level of Sentiment is associated with real consumption growing at 3.4%.
  • Historical episodes show that real consumption grows in the 2.5%-4.5% range while Sentiment is near current levels.
  • 5-year inflation expectation ticked up to 2.7%.


Additional highlights in the report:
  • "Consumer confidence inched upward for the fourth consecutive month due to more positive expectations for future economic growth"
  • "All of the early January gain was recorded among households with incomes above $75k"
  • "Stock price declines and a weakened global economy were spontaneously mentioned by nearly one-third of all households with incomes in the top third, identical to the levels following the August plunge in stock prices"
  • "Nonetheless, households held more favorable prospects for the national economy than in the closing months of 2015"
  • "Buying conditions for household durables were rated favorably by 81% of all consumers for the past two months, the highest level since January 2006"

Preliminary Michigan Sentiment in December at 93.3, up 0.7 points from the December estimate.


Looking closer at the relationship between Michigan Sentiment and household consumption:
The chart below plots the 3mma of Michigan Sentiment in the x-axis and real consumption (3mma, YoY) in the y-axis. The vertical black line shows the most recent monthly print. The expected growth rate of consumption based on the latest Sentiment reading would be close to 3.4%.

Perhaps even more important, the current level of Sentiment is compatible with consumption growth in the 2.5%-4.5% range, with a few outliers above this range and no episode of real consumption growth below 2% in the vicinity of the current level for Michigan Sentiment.


Inflation expectations ticked up to 2.7%.