Market Data: Weak Michigan Sentiment & High Inflation Fears

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The preliminary University of Michigan sentiment report for February revealed a surprising -2.8 point drop to a 6-month low of 76.2 from 79.0 in January and 80.7 in December, versus a 7-month high of 81.8 in October. Nearly all of the weakness was in the expectations component. We also saw a climb in the 1-year inflation gauge to a 3.3% figure last seen in July of 2014, while the 5-10 year inflation measure sustained the 2.7% January high also seen in August, September and May, and previously in March of 2016. The headline confidence drop defies the lift expected from stimulus deposits and vaccine distributions, with likely ongoing headwinds from tightened lockdowns. Monthly gyrations in the confidence readings around historically firm levels reflect the myriad of conflicting events that are driving the news cycle.

  • Michigan Sentiment fell to a 6-month low of 76.2 in February from 79.0.
  • Current conditions fell to a 4-month low of 86.2 from 86.7.
  • Expectations rose to a 6-month low of 69.8 from 74.0.
  • The 1-year inflation measure rose to a 3.3% high last seen in July of 2014.
  • The 5-10 year inflation measure sustained the January rise to a 2.7% high also seen in August, September and May, and previously in March of 2016.

For the components, current conditions fell to a 4-month low of 86.2 from 86.7, versus a 9-month high of 90.0 in December, a 9-year low of 74.3 last April, and an all-time low of 58.9 in October of 2008. Expectations rose to a 6-month low of 69.8 from 74.0, versus a 7-month high of 79.2 in October, a 7-year low of 65.9 in July that as also seen in May, and an all-time low of 44.2 in July of 1979.

The 1-year inflation measure rose to a 3.3% high last seen in July of 2014, from a 5-month high of 3.0% in January and an 8-month low of 2.5% in December, versus a 3.2% high last May that was previously seen in August of 2014, and a 2.1% expansion-low last April.

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The 5-10 year inflation measure sustained the January rise to a 2.7% high also seen in August, September, and May, and previously in March of 2016, versus a 7-month low of 2.4% in October. We saw an all-time low of 2.2% in December of 2019.

For other February surveys, the IBD/TIPP index rose to 51.9 from 50.1, versus an 8-month high of 55.2 in August, a 59.8 high from the last expansion in February of 2020, a 5-year low of 44.0 last July, and a low from the financial collapse of 37.4 in June and July of 2008.

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The Bloomberg Consumer Comfort index entered February at 44.9, following averages of 44.3 in January and 46.8 in December. The monthly average marked a 6-year low of 35.9 last May and a 66.2 cycle-high in January of 2020. The weekly index marked a 6-year low of 34.7 last May and a 20-year high of 67.3 in January of 2020.

We expect consumer confidence to rise to 90.0 from 89.3 in January and a 4-month low of 87.1 in December, versus a 6-year low of 85.7 last April.

Last month’s -0.2 January Michigan sentiment revision followed an average revision of -0.4 in 2020. We saw a -0.2 average downward revision in 2019, and a zero average revision in 2018.

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