Main takeaways:
  • Final Michigan Sentiment in October at 90.0, down 2.1 points from the preliminary estimate.
  • This was largely due to less favorable assessments of buying conditions (due to fewer discounts).
  • The overall tone of the report was very positive (see quotes below).
  • Historical episodes show that real consumption grows in the 2.5%-4.0% range while Sentiment is near current levels.
  • 5-10y inflation expectation ticked down to 2.5%, the lowest rate ever recorded.

Additional highlights in the report:
  • "Confidence retreated in late October largely due to less favorable assessments of buying conditions"
  • "Largest gain was among households in the bottom third of the income distribution"
  • "Future financial prospects were viewed more favorably by all households than anytime since 2007"
  • "Consumers remain sensitive to pricing, with small decline in buying plans since mid month due to fewer price discounts than had been anticipated"
  • "Consumers voiced a somewhat greater willingness to use savings and debt to make major purchases"
  • "Net income gains were reported by the highest number of households with incomes in the bottom third in the past ten years"
  • "Households expressed a degree of financial optimist unseen since mid-2007"
  • "Two-thirds of all consumers reported hearing news of negative economic developments in early October, unchanged from September"
  • "News of job losses were reported slightly more frequently than job gains, the weakest in more than a year"
  • "October's 2.5% long term inflation rate ties the lowest rate ever recorded"

The final reading for October's Univ. of Michigan Sentiment rebounded from September (90.0 vs 87.2).


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 3.1%.

Perhaps even more important, the current level of Sentiment is compatible with consumption growth in the 2.5%-4.0% range, with a few outliers above this range and no episode of consumption growth below 2% in the vicinity of the current level for Michigan Sentiment.


Inflation expectations ticked down to 2.5%, the lowest rate ever recorded (since Sep/2002)