Long-term Consumer Outlook

The Michigan Consumer Survey for September came out today showing continued weakness in consumer sentiment, in fact consumers are 12.9 percent more dour now than they were last year at this time. The low reading of 59.4 is a bottom that hasn’t been scrapped since 1980.

While the survey has some damning indications for consumption in the coming months, of particular interest in the survey is not just the index number, but the trend in answers to this question: “Looking ahead, which would you say is more likely — that in the country as a whole we’ll have continuous good times during the next five years or so, or that we will have periods of widespread unemployment or depression, or what?”

Writing at Project Syndicate last week, Robert Shiller noted from the preliminary Michigan Survey numbers that the index based on this question had also fallen to levels not seen since the early 1980s:

…it appears spot-on for what we really want to know: what deep anxieties and fears do people have that might inhibit their willingness to spend for a long time. The answers to that question might well help us forecast the future outlook much more accurately.

Those answers plunged into depression territory between July and August, and the index of optimism based on answers to this question is at its lowest level since the oil-crisis-induced “great recession” of the early 1980’s. It stood at 135, its highest-ever level, in 2000, at the very peak of the millennium stock market bubble. By May 2011, it had fallen to 88. By September, just four months later, it was down to 48.

This is a much bigger downswing than was recorded in the overall consumer-confidence indices. The decline occurred over the better part of a decade, as we began to see the end of debt-driven overexpansion, and accelerated with the latest debt crisis.

We will want to watch this portion of the Michigan survey over the coming months for an indication of what the long-term consumer expectations are and how that might impact attempts to boost consumption.