Consumer sentiment has remained largely unchanged for more than a year at very favorable levels, according to the University of Michigan Surveys of Consumers.

The January Sentiment figure was just 0.2 Index-points below December's, and just 1.1 points below the 2017 average of 96.8—which was the highest yearly average since 2000, said U-M economist Richard Curtin, director of the surveys.

Stock price increases and tax reforms were mentioned by all-time record numbers of consumers. To be sure, there were small offsetting declines among lower income households and residents of the Northeast.

Consumers continued to expect growth in jobs and incomes, but anticipated a slightly higher inflation rate during the year ahead. Overall, the data indicate that real personal consumption expenditures will expand by 2.8 percent in 2018.

"Perhaps the most significant change in economic assessments involves the motivating factors behind discretionary purchase decisions," Curtin said. "These forces have shifted from discounts on price and interest rates to increased confidence in future job security, growth in wages and financial assets.

"This basic sense of economic confidence only occurs after uncertainty is substantially reduced. Unlike earlier in the expansion when consumers were apprehensive about future prospects, this renewed sense of confidence has been responsible for spending decisions that pushed the savings rates to recent lows. Further gains in the pace of spending will crucially depend on the impact of tax cuts on spending decisions."

Tax Reforms Viewed Positively on Balance
In the January survey, spontaneously favorable references to government economic policies were made by 35 percent of all consumers, the highest level recorded in more than a half century. Most of these references involved the recently passed tax reforms.

Across all respondents and all open-ended questions, 22 percent of consumers spontaneously mentioned that the recent tax reforms would have a favorable impact, 6 percent cited a negative impact, and 4 percent mentioned both negative and positive aspects of the tax reform. Moreover, consumers who favorably mentioned the tax legislation had values on the Expectation Index that were twice as high as those with negative views.

Gains in Jobs, Wages, Stock Prices
The finances of consumers continued to benefit from gains in jobs, wages and financial assets. When asked to explain in their own words how their personal finances had changed, the highest proportion ever recorded mentioned that the value of their household's asset holding had increased. These favorable reports were concentrated among those with incomes in the top third, with 29 percent reporting increased net wealth holding—the second highest since 32 percent in 2007.

Expected income gains also improved slightly, as consumers anticipated an annual gain of 2.1 percent, up from 1.9 percent one month and one year ago; those under age 45 anticipated an income gain of 3.4 percent.

Consumer Sentiment Index
The Consumer Sentiment Index was 95.7 in the January 2018 survey, marginally below the 95.9 in December, and down from 98.5 in January 2017. The Current Conditions Index was 110.5 in January, down from last month's 113.8 and last year's 111.3. The Expectations Index was 86.3 in January, between last month's 84.3 and last year's 90.3.

Consumer sentiment has remained largely unchanged for more than a year at very favorable levels. The January Sentiment figure was just 0.2 Index-points below December's, and just 1.1 points below the 2017 average of 96.8--which was the highest yearly average since 2000. Stock price increases and the passage of tax reforms were mentioned by all-time record numbers of consumers. To be sure, there were small offsetting declines among lower income households and residents of the Northeast. Consumers continued to expect growth in jobs and incomes, but anticipated a slightly higher inflation rate. Importantly, the motivating force behind purchase decisions has shifted from discounts on prices and interest rates to increased confidence in future job security and growth in wages as well as financial assets. This renewed sense of confidence was responsible for the recent declines in savings rates. The tax cuts will increase discretionary spending once higher energy bills due to the unusually cold weather are paid. Monetary policy will need to tighten in the year ahead, but given consumers' decade long experience with record low interest rates, only modest increases in interest rates will be sufficient to curb any excesses. Overall, the data signal an expected gain of 2.8% in real personal consumption expenditures during 2018.