Main takeaways:
  • Lowest expected long term inflation rate since this question was first asked in 1979!
  • Declining equity prices, weak global economy, ..., have become old news -- mentioned by 1-in-5 among rich households (down from 1-in-3 in Jan and last Sept).
  • Current level of Sentiment is associated with real consumption growing at 3.1%.
  • Historical episodes show that real consumption grows in the 2.2%-4.0% range while Sentiment is near current levels, with no episode of real growth below 2%.

Additional highlights in the report:
  • "February decline was due to a less favorable outlook for the economy during the year ahead"
  • "consumers viewed their personal financial situations somewhat more favorably"
  • "consumers anticipated the lowest long term inflation rate since this question was first asked in the late 1970".
  • "The proporstion of households that reported an improved financial situation rebounded to 45% in early February, the highest level in six months"
  • "when asked about their financial prospects over the next five years, 54% anticiated improved finances, while just 10% expected worsening finances over the longer term, the best reading since 1984 "
  • "Although declining equity prices, weak global economy, and sagging exports have continued, they have become old news -- mentioned by one-in-five among households with income in the top third in February, down from one-in-three last month (and in Aug/15)"
  • "fewest consumers in two years to report recent improvement in the economy"
  • "fewest consumers since Aug 2014 to anticipate good times in the economy during the year ahead"
  • "consumers thought that unemployment would inch upward by the end of 2016"
  • "Buying plans remained favorable due to discounted prices and low interest rates"

Preliminary Michigan Sentiment in February at 90.7, down 1.3 points from the January 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 3.1%.

Perhaps even more important, the current level of Sentiment is compatible with consumption growth in the 2.2%-4.0% 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.


Lowest expected long term inflation rate since this question was first asked in 1979!