Main takeaways:
  • Preliminary Michigan Sentiment down sharply to 85.7 in September (from 91.9 in August).
  • This mostly reflects losses in household wealth -- which offset more benign views on employment.
  • There was, however, an improvement intra-month; sentiment had dropped 9 points in the aftermath of stock market 'mini-crash'.
  • Historical episodes show that real consumption grows in the 2%-3.5% range while Sentiment is near current levels.
  • It is important to watch if this was a one-off drop in confidence or the start of a downtrend.
  • 5-10y inflation expectation ticked up a bit, but remains broadly sideways.
The preliminary reading for September's Univ. of Michigan Sentiment was sharply down (85.7 vs 91.9).

Would that drop mean a sharp slowdown in consumption (as hinted by the chart below)?

Let's take a closer look 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 2.5%.

Perhaps even more important, the current level of Sentiment is compatible with consumption growth in the 2%-3.5% range with no episode of consumption growth below 2% while the Sentiment index was around the current level.


Inflation expectations ticked up a bit, but remain broadly sideways.