Michigan Consumer Sentiment Index Preview: Jobs not politics

• Sentiment to continue its recovery from shutdown decline 
• No impact from February's weak job numbers 
• Current conditions and expectations are at the middle of their two year range

The University of Michigan will release its preliminary Consumer Sentiment Index for March on Friday March 15th at 10:00 am EDT and 14:00 GMT

Forecast

The Consumer SentimentIindex is expected to increase to 95.3 in March from 93.8 in February.  The Current Conditions Index is predicted to rise to 111.0 form 108.5. The Expectations Index is projected to reach 86.0 from 84.4 in February

US Consumer Sentiment and the government shutdown

The 35 day partial US government closure ended almost two months ago but the fallout continues to work its way through the American statistical regimen.

Consumer sentiment was one of the two statistical categories noticeably affected by the shuttering of 25% of the Federal government from late December to late January. The other was business sentiment.

The Michigan Consumer Sentiment Index saw a 14 year peak in March 2018 at 102.0.  By September this index had declined to 100.0 and by December it was at 97.5. In January when the government was partially closed until the 25th it plunged to 90.7. That was the lowest it had been since October 2016, the month before it began its post-election climb.

The 6.8 point drop in January was a bit less than half redeemed by February’s gain to 93.8.  If the 95.3 forecast for March is correct the index will have recovered about two-thirds of its immediate pre-crash level of 97.5, which is also very close to the 27 month post-election average of 97.3.  

Reuters

A similar pattern is exhibited by the current conditions and expectations indexes.

The current index reached a 19 year high of 122.8 in March 2018. It subsequently fell as low as 107.8 that August and was at 115.2 for December.  In January it dropped to 110.0 and in February 108.5.  The March estimate of 111.0 would leave it at the low end of the 107.8 to 122.8 post-election range.

Reuters

The expectations index, which inquires about the view six months from now had a 2018 high in September at 91.1. By December it was 86.1. In January it went to 78.3, recovering to 84.4 in February.  The 86.0 forecast for March would bring it back to within 0.1 point of the December level.

Consumers didn’t like the latest government closure over political disputes in the capital.  But of the 18 shutdowns in the past 40 years, every president has had at least one except George W. Bush, all that were long enough to generate a public response were unpopular.

Employment and consumer sentiment

Far more potentially important than the passing impact of the government shutdown is the unexpectedly weak February non-farm payrolls report.

The US labor market to January has had its best annual run in three years. For factory employment the past 24 months have seen best expansion in manufacturing work in two decades. Labor shortages have begun to increase earnings and bring long-term unemployed workers back into the labor force.

If the job market continues its recent performance then consumer sentiment will quickly reflect the prosperity.  If the labor market falters, that too will be speedily incorporated in consumer attitudes.