Michigan Consumer Sentiment
Michigan Consumer Sentiment (formally the Index of Consumer Sentiment, ICS) is a broad gauge of how optimistic or pessimistic consumers feel about their own financial situation and the general state of the economy. Confident consumers te…
At A Glance#
| Field | Detail |
|---|---|
| Provider | University of Michigan, Institute for Social Research |
| Survey / Tool | Surveys of Consumers — Index of Consumer Sentiment (ICS) |
| Frequency | Monthly |
| Indicator Type | Leading |
| Main Use | Gauges how optimistic or pessimistic consumers feel about their own finances and the economy — attitudes that predict future spending |
| Timeframe Tracked | Short to Medium-Term (6 months to 2 years) |
| Base Period | 100 = Q1 1966 |
| Source | https://www.sca.isr.umich.edu/ |
What It Is#
Michigan Consumer Sentiment (formally the Index of Consumer Sentiment, ICS) is a broad gauge of how optimistic or pessimistic consumers feel about their own financial situation and the general state of the economy. Confident consumers tend to spend more money — which is what makes this a leading indicator of actual spending and GDP.
The University of Michigan's Index of Consumer Expectations — a sub-component of this index — was specifically selected as part of the U.S. Leading Economic Indicators because of its ability to forecast future economic trends.
For how the underlying Surveys of Consumers works (sample, methodology, criticisms), see Michigan Surveys of Consumers.
Who Provides It#
The University of Michigan's Institute for Social Research, via the monthly Surveys of Consumers.
How It Is Collected#
From the same monthly household survey described in Michigan Surveys of Consumers:
- Approximately 500 completed interviews per month, based on a nationally representative sample of U.S. households
- Questions cover personal finances, business conditions, buying conditions, and expectations for the economy
How It Is Computed#
The headline Index of Consumer Sentiment is built from five core questions:
| Question group | Questions | Focus |
|---|---|---|
| Personal financial situation | 2 questions | Current vs. a year ago; expected a year from now |
| Economic outlook | 2 questions | Business conditions over next 12 months; next 5 years |
| Buying conditions | 1 question | Is now a good or bad time to buy major household items? |
Responses are classified as favourable, unfavourable, or other. The index is calculated from the balance of favourable versus unfavourable responses and expressed relative to the 1966 base period (= 100).
Two sub-indexes:
| Sub-Index | Based on | Indicator type |
|---|---|---|
| Current Economic Conditions (ICC) | Current-condition questions | More coincident |
| Index of Consumer Expectations (ICE) | Future-oriented questions | More clearly leading |
The Index of Consumer Expectations (ICE) is the component selected for the U.S. Leading Economic Indicators.
Indicator Type#
Leading overall. Consumer sentiment captures expectations and attitudes before they show up in actual spending data. However, there is a nuance:
- Current Economic Conditions sub-index = more coincident (reflects how things are now)
- Consumer Expectations sub-index = more clearly leading (reflects where consumers think things are going)
The headline blends both, making it a leading indicator with a mild coincident element.
Why It Matters#
Confident consumers spend; worried consumers save and cut back. A Michigan Consumer Sentiment reading plunging to record lows — even when hard data like unemployment and stock prices look fine — is a highly accurate leading signal that Retail Sales and Personal Spending are about to weaken.
Consumers spend based on their feelings about their own purchasing power, not based on Wall Street's data. This makes sentiment surveys like Michigan a unique and valuable leading indicator that hard economic data cannot fully replace.
Practical use: A sharp, sustained drop in ICS typically leads actual consumer spending weakness by 1–3 months. The Fed, retailers, and forecasters all watch for divergences between sentiment and hard spending data.
Related Notes#
- Michigan 1-Year Inflation Expectations — from the same monthly survey; short-run price expectations
- Michigan 5-Year Inflation Expectations — from the same survey; long-run anchoring indicator
- Michigan Surveys of Consumers — full survey methodology, sample size, and the psychological case for why it matters
- Retail Sales — the hard spending data that often follows sentiment shifts
- Personal Spending — the broadest measure of actual consumer spending