What is the Michigan Consumer Sentiment Index?
Michigan Consumer Sentiment Index
The Michigan Consumer Sentiment Index (MCSI) is a notable metric used to gauge US consumer confidence levels every month. So, what is the MCSI, how is it measured and how can you use the index to inform your trades? Find out below.
The Michigan Consumer Sentiment Index, explained
Published by the University of Michigan, the Michigan Consumer Sentiment Index (MCSI) is a monthly survey based on interviews that measure US consumer attitudes towards personal finances, business conditions and economic activity.
The MCSI was created in 1946 by Dr George Katona at the University of Michigan, and it is a historically significant indicator of customer confidence in the future trajectory of the national economy. While its original data collection methodology of phone interviews was arguably more suited to older adults, the index has transitioned to web surveys to capture the consumer sentiment of younger consumers.
How does the Michigan Consumer Sentiment Index work?
Like the Consumer Confidence Index (CCI), the MCSI works by gauging US consumer sentiment about personal finances, their buying power and the general economic situation.
After years of being virtually unchanged, the University of Michigan evolved the index's methodology in 2024. From April to July 2024, all collected data shifted from 600 phone interviews per month to a target sample size of 900-1000 web interviews per month.
Interviewees are typically asked 50 core questions that might include:
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Would you say that you (and your family living there) are better or worse off financially than you were a year ago?
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Do you think that a year from now you will be better off financially, or worse off, or just about the same as now?
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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?
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Now turning to business conditions in the country as a whole – do you think that during the next 12 months we'll have good times financially, bad times financially, or what?
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Looking ahead, which would you say is more likely – that in the country as a whole we'll have continuous good times during the next five years or so, or that we will have periods of widespread unemployment or depression, or what?
The MCSI is essentially calculated by subtracting the percentage of low (pessimistic) consumer scores from high (optimistic) scores.
It is released in two versions – a preliminary report mid-month and a final report at the end of the month.
Why is the Michigan Consumer Sentiment Index important?
The MCSI is seen as a leading economic indicator as it offers a unique window into consumers' minds that is unlike most other metrics. Sampling a wide range of US consumer expectations adds depth to the report by revealing human experiences reflecting how economic factors affect everyday life. This consumer sentiment is assessed by traders to determine the current strength of consumer spending, a crucial driver of the US economy.
Plus, the index's data is derived from interviews that may be conducted shortly before release. This allows consumers to express uncertainty or optimism surrounding the latest global geopolitical factors, an upcoming election, or their financial situation.
How to read the Michigan Customer Sentiment Index
Traders can draw from the MCSI's historical context to inform their future trades. Historical data suggests that consumer confidence tends to nosedive immediately before and during recessions. When the economy recovers trust in consumers' minds, the index may climb and signal a potential uptick in economic growth, which could lead to increased inflation.
The value of the US dollar usually rises and falls alongside the MCSI, with stronger reports than expected being bullish for USD and weaker reports bearish for the currency.
MCSI FAQs
What does the Michigan Consumer Sentiment Index measure?
The MCSI measures US consumer expectations about current and future economic conditions, including personal finances, interest rates and the overall economy.
Who are the interviewees?
To ensure a representative sample of US consumers, interviewees are adults aged at least 18 who are randomly selected across the 48 contiguous United States.
Can the MCSI predict economic downturns or expansions?
Due to the data being collected from a wide range of American consumers' perspectives, the MCSI has historically been used by traders to predict economic expansions and downturns.
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