What It Measures
The University of Michigan Consumer Sentiment Index is based on monthly telephone surveys of approximately 500 households. Questions cover:
- Personal financial situation (current and expected)
- Business conditions (short-term and long-term)
- Buying conditions for major household items
The index is scaled so that 1966 = 100. Sub-indices track current conditions and expectations separately.
Why It Matters
Leading Indicator: Consumer sentiment often precedes changes in consumer spending.Confidence Proxy: Shows how optimistic or pessimistic consumers feel about the economy.Inflation Expectations: The survey includes questions about expected inflation, which the Fed monitors closely.Recession Warning: Sharp declines in sentiment have preceded economic downturns.
How to Interpret
Level vs Change: Both the absolute level and direction of change matter.Expectations Component: More forward-looking than current conditions.Inflation Expectations: 1-year and 5-year inflation expectations can move markets.
Key Levels to Watch
| Level | Interpretation |
|---|---|
| Above 100 | Optimistic consumers |
| 80-100 | Moderate confidence |
| 60-80 | Pessimistic consumers |
| Below 60 | Very pessimistic, recessionary readings |
Historical Context
Consumer sentiment hit an all-time low of 50.0 in June 2022 amid high inflation, surpassing even the depths of the 2008 financial crisis and early pandemic.