The University of Michigan’s Index of Consumer Sentiment is one of two monthly US consumer sentiment indices, the other being the Conference Board’s Consumer Confidence Survey. It covers personal finances, business conditions and buying conditions. As private consumption accounts for a majority of GDP growth in advanced economies, consumer sentiment surveys present a picture of the economy well in advance of official reports. However, as leading indicators, they are only as useful as other widely available data.
The latest survey conducted by the University was carried out before the recent equity market turmoil. It indicates US consumers view their overall prospects favourably despite a modest fall in the index which was driven by a change in the general outlook for personal finances. The result was a small fall in the index from 100.1 in September to 99.0 in October, although it is still well above the long-term average (see chart below).
The chief economist of the Survey of Consumers unit, Richard Curtin, said the small decline came about because households are less positive regarding future income growth while they also expect inflation rates to rise. However, he also noted confidence in the overall economy is strong. “Indeed, confidence in the government’s economic policies rose in October to its highest level in the past fifteen years, reflecting the strong performance of the national economy.”