A little-known recession indicator is now flashing a warning sign, and its record over the last 40 years suggests we should pay attention to it. The indicator focuses on divergences between the University of Michigan’s Consumer Sentiment Index and the Conference Board’s Consumer Confidence Index. Both indexes are widely reported with many investors wrongly considering them to be interchangeable. The indexes are similar, but different. U of M’s index focuses more on how respondents feel about their own personal financial situation, whereas the Conference Board’s focuses on how they feel about the overall economy. James Stack, editor of the InvesTech Research newsletter, says that periods when the two measures diverge are significant – and they are very divergent now. The composite indicator typically reaches a low prior to recessions, and it currently is lower than at any other time since 1979.
