There is a strong positive feedback mechanism involving consumer sentiment and the economy. As conditions get better, people get more confident, which causes them to spend more, so companies hire more, which makes people more confident….
That all works until it doesn’t, and then the positive feedback goes the other way, making people get less confident as they see the economy slowing, making them spend less money, which causes layoffs, which makes people less confident….
The University of Michigan’ Survey of Consumers Index of Consumer Sentiment hit 100.7 in October 2017, its highest reading since January 2004. It has backed off just a little bit since that October reading, but is still at a very high level, showing that consumers are feeling pretty confident.
This week’s chart shows the relationship of that University of Michigan number and the U-3 unemployment rate. There is an interesting lag in the unemployment numbers, and that is highlighted with the 10-month time offset employed in the chart above. I want to emphasize that the consumer sentiment data plot is inverted in that chart so that we can better see the correlation to unemployment.
This post was published at FinancialSense on 12/15/2017.