The index stands at 83 — still below the long-term average of 87 — but a marked improvement from scores in the low 70s last year.
By Manuel Gutierrez, Consulting Economist to NKBA
Measuring consumer sentiment helps economists and businesses assess current mood and prospects, as well as help predict the business outlook in the near term.
There are currently a number of organizations that conduct surveys to get a handle on consumer views, but one that has proven to be consistently reliable over time is the University of Michigan’s Survey of Consumers. This survey has been conducted continuously since 1952. It was fielded on a quarterly basis for its first 26 years but moved to a monthly cadence in 1978.
Figure 1 displays the index back to 1980, with the six economic recessions highlighted by the gray bars.
Note that for several recessions, particularly those of 1990, 2001 and 2008, the index turned down a few months before the recession actually began. That is, the consumer sentiment index proved to be a leading indicator of economic conditions.
To get a clearer picture of the current situation, Figure 2 displays the sentiment data for the last five years. Until February 2020, the index had been above the long-term average of 87, illustrated by the dashed horizontal line. Additionally, the index over that period has had a slightly upward bias, which is illustrated by the dotted red line.
The index average was 91.8 in 2016 and rose to 96 by 2019. It dropped sharply into the low 70s immediately after the pandemic caused chaos and major economic and business shutdowns.
Since then, the index has begun an uneven recovery, as clearly illustrated in Figure 2. The latest reading, as of March of this year, put it at 83. The improvements in the index reflect a better economic outlook, as vaccines to combat COVID-19 are becoming more readily available, and more people have received their shots.
The latest government stimulus package, the relaxation of business restrictions, and the beginnings of a turnaround in some of the hardest hit industries — like Hospitality, Travel and Retail — have all served to brighten consumer sentiment.
