A Measure That Stopped Predicting the Thing It Measures

The read on the American consumer has been fixed for months. Confidence sits at the bottom of its recorded range, and a pullback in spending is treated as the next step.

The University of Michigan put its final September sentiment index at 48.1. That was 3.6 points below August and below the first percentile of the survey's own history.

The expectations component fell to 46.3. Year-ahead inflation expectations rose to 4.6 percent from 4.0.

Against an average of 83.6 since 1978, the index sits 42.5 percent lower. Coverage has used the series as a warning light on household spending.

The key observation is that the survey changed its collection method in 2024, and its lows are measured against readings gathered another way.

The instrument changed in the middle of the record.

The Surveys of Consumers moved from telephone interviews to web questionnaires over four months. In April 2024 three quarters of interviews were still by phone, and by the July preliminary release every one was online.

The university said at the time that web estimates of current conditions come in consistently lower than phone estimates. It attributed the difference to interviewers projecting warmth over the phone.

The Federal Reserve Bank of Chicago put a number on it. Scott Brave, Ben Henken and Katherine Jolley estimated in June that the index now reads 25 to 30 points below what their model implies.

That gap was about 10 points just after the switch. It has widened since.

The same paper measured what the index is worth as a read on spending. Before 2020 it tracked annual growth in real consumer spending at a correlation near 0.69.

The rolling correlation over the last ten years is near zero. Real consumer spending grew 2.1 percent over the year through April, the authors reported.

Behavior has not followed the mood down. The third estimate put second quarter growth at a 2.2 percent annual rate, the Bureau of Economic Analysis reported.

Initial jobless claims were 197,000 in the week ended October 3, according to the Labor Department.

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This is a mood-spending drift.

A survey records what people say when asked. The spending data records what they paid.

For decades those two moved closely enough that one helped anticipate the other. The link has loosened.

Part of the move belongs to the instrument and part to the people answering. Neither series separates the two.

The Chicago Fed authors date most of the break to the years after 2020, not to the move to web alone.

The readings are not false. People are answering the question they were asked, and prices are the grievance they keep naming.

The comparison is what breaks. A number that is low against its own past needs that past to have been measured the same way.

For months, I've been telling my readers that China's economy is cornered.

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China peaked in 2021, and AI can't save them.

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Foreign investment fleeing.

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The expectations index in the competing consumer survey. That survey also moved online, and its own transition shifted its level far less. A decline there alongside the Michigan slide would point at households rather than at the instrument. A flat reading would leave the Michigan drop looking like a property of that survey. (Source: The Conference Board)

Advance monthly retail sales. This counts what registers rang up rather than what shoppers reported feeling, and it is published monthly. Continued growth while the mood index sinks would widen the drift. A decline would show the survey catching something the receipts had not yet recorded. (Source: Census Bureau)

Revolving consumer credit. This is the balance households carry on their cards, published monthly in the consumer credit release. Rising balances alongside flat incomes would place the spending on borrowing rather than on confidence. Falling balances with spending intact would place it on income. (Source: Federal Reserve)

A record low is a statement about everything that came before it. Those earlier readings were collected another way, and the comparison carries that difference inside it.

Talk soon,
The Playbook Daily