Is this the best ever US consumer economy? At first blush, you might think so. Unemployment is unusually low, wages are finally starting to rise, and US equities are still near historic highs. What’s not to like?

The University of Michigan Consumer Sentiment Index tells a different story:

  • Yes, the latest data out on Friday showed the index reaching 100.8. That is the second highest reading since 2004, bested only by March 2018’s 101.4.
  • But look back further in the data (the survey started in 1952) and you will see that all-time “peak sentiment” was in January 2000 at 112.0. That is 11% higher than today.
  • Consumer sentiment was also higher for large swathes of 1997 to 2000, regularly above 104. 

On the plus side, however, current Consumer Sentiment is actually better than the 1950s and 1960s (i.e. when the American economy was in a strong secular uptrend). The data:

  • The 1950s sentiment peak was in November 1956, at 100.2 (lower than Friday’s reading by 0.6).
  • Consumer sentiment rarely scored above 100 in the 1960s, aside from 4 quarters during 1964-1965. Other than that period, it remained range bound from 90-100. 

The upshot: like many economic measures, Consumer Sentiment is a useful tool only when you consider volatility and direction. Level matters much less. For example: 

  • The 1980s saw a long stretch (1983 to 1990) of Consumer Sentiment scores between 90 and 100. There was one dip to 83 in the aftermath of the 1987 market crash, but it quickly recovered. So while an average score of 95 for this period may not sound great versus today’s +100 readings, consistently good sentiment was a real aide to sustainable economic growth and outsized market returns. 
  • The 1990s economic cycle exhibited consumer sentiment readings that climbed steadily from 68 (1992) to 112 (2000). There was some volatility early in this period, but past 1993 sentiment was either stable or rising. And things worked out pretty well for the US economy and equity markets. 

What all this says about today’s Consumer Sentiment readings: 

  • Sentiment readings have been grinding higher since 2012 without much volatility. This closely resembles the 1990s experience, a healthy sign. 
  • We are not yet to a point where the data shows excessive consumer confidence on par with the end of the 1990s cycle. Consumer sentiment readings reached 110 in February 1998 and +110 in January – May 2000. We are barely nudging over 100 just now. 

Key finding: as much as +100 Consumer Sentiment readings may look and feel like a “top”, history shows otherwise. Looking through the historical data, it is clear that consumer memories are long. The early 1990s US recession was nowhere near as bad as the Great Recession of 2008-2009, and it took 9 years to hit those record highs in Consumer Sentiment. We are 9 years into the current expansion, and sentiment remains below those all time peaks. We may yet get to those old highs, but it will still take a while longer unless a macro shock derails things. 

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US Consumer Economy