Main takeaways:
  • Preliminary Michigan Sentiment in December at 91.8, up 0.5 points from November.
  • Poor consumers are felling better about current situation.
  • Rich consumers are worried about the future.
  • All think unemployment rate has reached a bottom.
  • The overall tone of the report was very positive (see quotes below). Current level of Sentiment is associated with real consumption growing at 3.25%.
  • Historical episodes show that real consumption grows in the 2.25%-4.5% range while Sentiment is near current levels.
  • 5-10y inflation expectation at the 2.6% level.

Additional highlights in the report:
  • "December gain was recorded among households with incomes in the bottom two-thirds (+2.7pp)"
  • "Sentiment Index among consumers with incomes in the top third declined (-4.4pp)"
  • "Largest loss was in how consumers judged prospects for the national economy the year ahead"
  • "Consumers anticipated somewhat lower wage gains and were less optimistic about continued declines in the unemployment rate"
  • "Two-thirds of all consumers expect interest rates to increase in the year ahead, a reading only comparable to the levels last recorded from 2004 to 2006"
  • "During the past three months, the average expected long term inflation rate (2.6%) was the lowest recorded in more than a quarter century"
  • "Less favorable prospects for the national economy were more frequently voiced by households with incomes in the top third"
  • "Regardless of income, consumers expect unemployment to edge slightly upward in the year ahead"

Preliminary Michigan Sentiment in December at 91.8, up 0.5 points from the November 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 3.25%.

Perhaps even more important, the current level of Sentiment is compatible with consumption growth in the 2.25%-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 at 2.6%.