Chart of the week: do as I do, not as I say

15 May 2024

Data-driven insights and analysis from our investment team every week.

Last week markets took note of a large drop in consumer sentiment in the US. The data series they were looking at was the consumer sentiment survey compiled by the University of Michigan and it did drop quite significantly. However, as an indicator of what consumers actually do in the future it has been poor of late.

In the chart below, we plot the consumer sentiment index against actual retail sales growth. A couple of conclusions can be drawn from it. Firstly, US consumer sentiment is much lower post-pandemic than it was pre-pandemic yet core retail sales growth, on average, is little different from one period to the other. Secondly, the consumer sentiment survey has been trending up since the middle of 2022, but core retail sales growth has been slowing. So, it has been a poor predictor of what happens to retail sales growth in the future. It can give some indication of what will happen to consumption activity on a month-by-month basis but says little about what the US consumer will do on a sustained basis.

The US consumer may be feeling good or bad, but it does not seem to have much lasting impact on his / her activity. You are better off watching the actual activity levels rather than getting caught up wondering about what is happening to sentiment. 


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