The University of Michigan Consumer Sentiment Index is produced by U of M and Thomson Reuters based on 500 telephone interviews of consumers in the 48 contiguous states. The respondents are asked five simple questions about the general economy and their own economic situation. They can answer that things are better, worse, or the same. Two of the five questions ask about current conditions both for their family and for the country as a whole. The other three ask about future conditions and future capital goods spending. Three indexes are based on the answers to the questions. The Consumer Sentiment Index uses answers from all five questions, the Index of Consumer Expectations uses data from the three questions that ask about future conditions and the Index of Current Economic Conditions uses data from the two questions that ask about current family and business conditions.
According to Reuters the index slipped in September to 77.5 in September to its lowest in five months as consumers saw higher interest rates and sluggish economic growth ahead. The U of M’s other two indices also had their lowest reading since April with the gauge of consumer expectations at 67.8, and the index of current conditions at 92.6.
Month to month percentage and absolute changes in the index do not have much meaning since the number is not actually an index but a measurement of current consumer bullishness. It is very variable and influenced by a huge number of outside factors. It is most likely that the decline in Consumer Sentiment is due to both falling personal income, and a continued weak job market. As the recovery has not been strong enough to create significant levels of full-time employment opportunities, more and more Americans have turned to part-time employment or even disability insurance. This has kept wage growth well below what might be expected during a normal recovery. This is likely to continue as there is little to suggest that the recovery will gain much steam.