UMich Consumer Sentiment Surges, But There Is One Big Footnote

On the surface, the latest, November, UMichigan consumer sentiment survey was good: printing at preliminary 91.6, it was far ahead of the October 87.2 number, and significantly ahead of expectations of an 87.9 number. The Sentiment erased the small October decline to climb to its highest level since mid 2016 and rise slightly above the 2016 average of 91.1. According to the report, the recent gain in sentiment was driven by an improved outlook for the economy. 

The consolidated number was the product of improvement in both the Current Economic Conditions index, which rose from 103.2 to 105.9, while expectations surged over 7% from 76.8 to 82.5.

However, there was a big caveat: as UMich admitted, "the November data must be accompanied by the proviso that it was collected before the result of the Presidential election was known late Tuesday."

We are happy to wager any amount of money that when the Final November UMich print comes out, it will tumble due to the previously observed openly political nature of the UMichigan sentiment "polling" operattion; and since Trump is considered by the conventional polling wisdom as negative for the economy, the final print will slide right back under 90.

Still, even without the headline sentiment print, there was another, more troubling observation. As the report authors note, "the most striking finding in early November was that both near and long-term inflation expectations jumped to 2.7% from last month"s record matching lows of 2.4%. These increases must be replicated before they can be taken to indicate a troublesome development; thus far, the data has simply repeated the March 2016 peaks. Nonetheless, it may be viewed as added justification for next month"s expected interest rate hike. The expected small increase in interest rates had little impact on favorable buying attitudes, and still supports a 2.5% increase in real consumer spending during 2017."

And since the Fed is inexplicably drawn to this particular data series when making its rate decision, we are confident that the December rate hike odds just jumped that much closer to 100%.