The preliminary read on sentiment from the University of Michigan was a surprising bright spot in Friday’s weak economic data as the headline reading improved from 71.8 up to 73.7 versus expectations for a decline to 68.0. Even with this increase, sentiment remains near a 10-year low, so it’s not as though investors are actually positive, they’re just less negative. While the increase in sentiment was a bit of a surprise, it makes sense. April was a month where the economy was essentially shut down, so the impact of that sudden stop on sentiment was intense. However, now that things have started to thaw a little bit, you can’t fault people for becoming more optimistic.
While consumers are feeling a bit better about the way things are, they are still extremely uneasy about the future. The chart below breaks down sentiment towards current conditions and expectations about the future. While the current conditions component showed some improvement, the expectations component saw further declines.
One question in the monthly survey that caused us to do a double-take was the question that asks, “During the last few months, have you heard of any favorable or unfavorable changes in business conditions? And what did you hear?” In this month’s survey, the index that tracks instances of unfavorable news mentions hit a record high of 141. This series goes all the way back to 1959, and never before has it been near current levels. The prior high for this index was back in the depths of the financial crisis when the index peaked at 133. There hasn’t been much good news lately, but even this reading is extreme. Start a two-week free trial to Bespoke Institutional for full access to our research and interactive tools.