Main takeaways:
  • Preliminary Michigan Sentiment up sharply in October, fully recovering from lats month's drop.
  • This rebound was important - it shows consumers shrugged off volatility and equity prices drop in the last couple of months.
  • Sentiment improved mostly among the bottom two-thirds of income distribution.
  • Historical episodes show that real consumption grows in the 2.4%-4.6% range while Sentiment is near current levels.
  • 5-10y inflation expectation ticked down a bit, but remains broadly sideways.

Additional highlights in the report:
  • "...renewed confidence did not simply represent a relief rally, but reflected renewed optimism"
  • "personal financial expectations rose to their highest level since 2007"
  • "most of the recent gains were among households in the bottom two-thirds of the income distribution"
  • "net income gains were reported by the highest number of households with incomes in the bottom third in the past ten years"
  • "two-thirds of all consumers reported hearing news of negative economic developments in early October, unchanged from September"
  • "consumers held the least favorable prospects for the unemployment rate in more than a year"
  • "all of the weakening job prospects were reported by middle income households"
  • "declines in prices helped all households, especially among lower income households" [meanwhile the Fed is trying to change that...]

The preliminary reading for October's Univ. of Michigan Sentiment rebounded from September (92.1 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 3.3%.

Perhaps even more important, the current level of Sentiment is compatible with consumption growth in the 2.4%-4.6% 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 a bit.