The preliminary reading of 72.6 far beat the Bloomberg consensus of 65.5. This means an increase of one standard deviation (calculated based on the past three years).
figure 1: University of Michigan Sentiment Index (blue), Bloomberg 7/14 Consensus (light blue+) and Conference Board Confidence Index (tan). The sentiment index for July is preliminary. Recession peak-to-trough dates as defined by NBER are grayed out. Sources: University of Michigan (FRED), Conference Board (investing.com), Bloomberg and NBER.
The increase in sentiment comes from current conditions and expectations (for more discussion of the determinants of the index, see this postal). The president of the University of Michigan attributed the gain to increased confidence in inflation stability (Investment Encyclopedia) This transition is shown in Figure 2.
figure 2: Real year-over-year CPI inflation (bold black), University of Michigan one-year expected inflation (blue), Bloomberg 7/14 consensus (light blue+), and survey of professional forecasters expected inflation (red+). July inflation is preliminary. Recession peak-to-trough dates as defined by NBER are grayed out. Sources: BLS, University of Michigan, FRED, Philadelphia Fed, Bloomberg, NBER, and authors’ calculations.
