Consumer Sentiment Hits Highest Levels Since April

Key Takeaways

• The Michigan Consumer Sentiment Index for October reached 70.5, its highest level since April.
• The results came in better than economists expected, while consumer inflation expectations stayed within the pre-pandemic range.
• While the survey hit its highest level since April, economists reviewing changes to the survey’s methodology said online data collection may be skewing the results.

Consumer sentiment hit its highest levels since April, but economists said changes to the survey’s methodology may be skewing the data.

The Michigan Consumer Sentiment index moved up to 70.5 for its final October result, coming in better than both the preliminary result earlier this month and the September reading. Economists surveyed by The Wall Street Journal and Dow Jones Newswire forecast a reading of 69.0 for the month.

While consumers’ assessment of current economic conditions improved, their expectations of future economic performance diminished slightly.

“This month’s increase was primarily due to modest improvements in buying conditions for durables, in part due to easing interest rates,” said Michigan Surveys of Consumers Director Joanne Hsu.

Consumer inflation expectations for the year ahead remained at 2.7%, in line with pre-pandemic averages, while long-run inflation dipped lower to 3.0%. 

Sentiment Falls as Methodology Changes

The results for October’s consumer sentiment data were the best since April when the University of Michigan began transitioning its phone survey to an online format. Since then, results have dropped noticeably, with May’s results coming in eight points lower than the prior month.

Economists Ryan Cummings and Ernie Tedeschi theorize that the change in methodology may be painting a gloomier picture than reality. They found that the index is likely 11% lower than it would be if the transition had not happened.

The change may have skewed the demographics toward older respondents, many of whom were more likely to express negative sentiments, the study found. It also noted that many respondents failed to justify or explain their answers, with “Not Applicable” becoming the second-leading response to some questions. 

“The combined result of this analysis also adds to other studies which show that online respondents possess a negativity bias, potentially resulting from not interfacing with another human when taking the survey,” the pair wrote.

Read the original article on Investopedia.