The Michigan Consumer Sentiment Index (MCSI) is a key indicator that provides valuable insights into consumer confidence levels in the United States. This monthly survey, conducted by the University of Michigan, gathers critical data on consumer expectations for the economy through telephone interviews.
Consumer sentiment is a statistical measure of the overall health of the economy, shaped by consumer opinions. It involves understanding people’s perspectives on their current financial health, the short-term economic climate, and long-term economic growth prospects. This makes it a widely recognized economic indicator.
Key Highlights
- Understanding Consumer Perspectives: The MCSI is a survey that captures how consumers feel about the economy, personal finances, business conditions, and buying behavior each month.
- Structured Reporting: The University of Michigan releases a preliminary report mid-month with initial survey data and a final report at the end of the month, reflecting comprehensive responses.
- Economic Significance: As consumer spending constitutes about 68.1% of the U.S. economy, the MCSI serves as an essential leading economic indicator followed by businesses, policymakers, and investors.
Delving Deeper into the Michigan Consumer Sentiment Index (MCSI)
The Michigan Consumer Sentiment Index (MCSI) was created in the 1940s by Professor George Katona at the University of Michigan’s Institute for Social Research. This national telephone survey, published monthly, involves querying consumers on their views of personal finances and both the short-term and long-term states of the U.S. economy.
The preliminary report, released mid-month, covers responses collected in the first two weeks. The final report, released at month’s end, captures the sentiment of American consumers more comprehensively. The survey results signal critical information about near-term consumer spending plans and overall economic outlook.
Given that consumer spending plays a significant role in the U.S. gross domestic product (GDP), the MCSI is a crucial economic indicator. It informs decisions for businesses, policymakers, and participants in the investment community.
The Design and Structure of MCSI
Each month, the University of Michigan conducts at least 500 telephone interviews across the continental U.S. The survey comprises 50 core questions spanning three categories: personal finances, business conditions, and buying conditions.
Here are sample questions to understand the types of information solicited:
- Business Conditions: “Would you say that at the present time business conditions are better or worse than they were a year ago?”
- Personal Finances: “Would you say that you (and your family living there) are better off or worse off financially than you were a year ago?”
- Future Projections: “Do you think that a year from now you (and your family living there) will be better off financially, worse off, or just about the same as now?”
- Interest Rates: “What do you think will happen to interest rates for borrowing money during the next 12 months—will they go up, stay the same, or go down?”
- Price Expectations: “During the next 12 months, do you think that prices, in general, will go up, go down, or stay where they are now?”
Around 60% of each survey comprises new responses, while the remaining 40% is drawn from repeat surveys. This mix helps track changes in consumer sentiment over time, yielding a precise measure of consumer confidence.
Special Considerations
According to the University of Michigan, these surveys have accurately indicated future economic trends, including changes in interest rates, unemployment rates, inflation rates, GDP growth, housing, car demand, and more.
The Index of Consumer Expectations (ICE), a subsidiary survey of the MCSI, is included in the Leading Composite Indicators of the Bureau of Economic Analysis (BEA) under the Department of Commerce.
The MCSI’s ability to predict such vital economic changes underscores its importance as a strategic tool in economic forecasting and decision-making for businesses and policymakers alike.
Related Terms: Financial Health, Economic Indicator, Gross Domestic Product (GDP), Inflation Rates, Index of Consumer Expectations (ICE).
References
- Federal Reserve Bank of St. Louis, FRED. “Shares of Gross Domestic Product: Personal Consumption Expenditures”.
- Survey of Consumers, University of Michigan. “Survey of Consumers: Interview Dates 2023”.
- Survey of Consumers, University of Michigan. “Release Dates for 2023”.
- Survey of Consumers, University of Michigan. “Survey Description”, Page 1.
- Survey of Consumers, University of Michigan. “Questionnaire”, Pages 1-3.
- Curtin, Richard T. “Survey of Consumers”, Survey Research Center, University of Michigan, pp. 1.
