Research >> Economics
University of Michigan Consumer Confidence edged downward in February to 96.3
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Although consumer confidence edged downward in February, the overall average in the past three months was the highest in more than a decade. Normally, the implication would be that consumers expected Trump’s election to have a positive economic impact. That is not the case, however, as Democrats expressed expectations that are consistent with an impending recession, and Republicans expected renewed robust economic growth. While these extreme views largely offset one another, the self-identified Independents held expectations much closer to the optimism of the Republicans than to the pessimism of the Democrats. The data indicates a 2.7% growth rate in consumption during 2017, but it also indicates greater volatility and potential differences in discretionary spending across population subgroups.
Favorable Outlook for Personal Finances
Rising incomes as well as home and stock values meant that consumers held quite favorable views of their current finances. Financial prospects for the year ahead eased back from last month’s decade peak, largely due to slower wage gains and a higher expected inflation rate. Interestingly, current personal finances were viewed more favorably by Democrats, but future financial prospects were viewed more favorably by Republicans.
Outlook for Economy and Jobs Improve
Favorable long term prospects for the national economy were voiced by the largest proportion of consumers since 2004. More importantly, the largest proportion of consumers expected unemployment to fall below its already low level, the most optimistic view since 1984—due to much more favorable expectations among Republicans. Rising interest rates were expected by more consumers in the last two months than in the last decade.
The Consumer Sentiment Index was 96.3 in February 2017, just below January’s 98.5 and December’s 98.2, the highest three-month average since March 2004. The Current Conditions Index was 111.5 in February, insignificantly different from 111.3 in January or the 111.9 in December, the highest average since 2001. The Expectations Index was 86.5 in February, between last month’s 90.3 and last year’s 81.9.
The sharp partisan divide that now dominates consumer sentiment is unprecedented, and consumers cannot be expected to ignore economics for the sake of politics. No recession, as expected by Democrats, is likely to be on the horizon, neither is more robust economic growth, as anticipated by Republicans. These extreme views are likely to converge in the future due to continued modest GDP growth as well as favorable trends in employment and wages. Unfortunately, the convergence from mainly political to mainly economic influences on consumer sentiment is likely to persist for an extended period of time. Importantly, buying plans have been least affected by partisanship, showing traditional sensitivity to prices, interest rates, and discretionary incomes.
Posted: February 24, 2017 Friday 10:00 AM