The University of Michigan consumer sentiment survey is a joke of an economic data point. From my perspective, it's indicative of nothing and that's something I've been writing for a long time.
To see why, you only need to look at the chart. It blew out the pandemic and financial crisis lows in August and what's happened to the consumer since? Nothing. Spending has held up just fine and certainly looks nothing like December 2008 or April 2020.
What the UMich survey measures is the political mood and gasoline prices, nothing more. As far as I'm concerned, this was the end of the report as a useful metric of consumer spending:
You can see it basically flipped on the day of the 2020 election. Now, you can argue that politicians indeed change people's lives but not to this extent.
On top of that, the correlation with gasoline prices and this survey is extremely high and that also helps to explain why it plunged so precipitously in the summer.
Now that's all a long preamble to note that the UMich survey is due out tomorrow and I think it will be strong. The consensus is 65.0 compared to 64.9 previously. The way economists model this is via gasoline prices, which have generally been flat.
The reason I think it will be strong is that Americans are less angry about politics than they've been in awhile. Now I'm just going on the media mood here, so feel free to disagree, but there isn't a big wedge issue out there now. The State of the Union came and went without a big incident and Republicans are having a hard time pinning Biden down with unemployment at a record low and inflation improving.
With that, I can easily see a big beat in this survey to well-above the max economist estimate of 69.0 (Deutsche Bank).
And as much as I think this is a garbage indicator for forecasting consumer spending, it's still a market mover. If it's hot, the US dollar will continue to rally on Friday.
I should also note that the 1-year and 5-year inflation figures are also market movers and will be a big part of the puzzle. I don't think there's an edge to be had in those, so they will need to align with a hot headline to keep the dollar rally going. The prior readings were 3.9% for the 1-year and 2.9% for the 5-year.
