December Sentiment Index Unchanged, but Consumers Wary

Paul Ausick

The preliminary University of Michigan Consumer Sentiment Index for December registered a reading of 97.5, unchanged from the final November index level. The preliminary reading is 1.7% higher than the preliminary index reading of 95.9 in December of 2017.

Economists polled by Bloomberg were expecting a December reading of 97.4.

The December subindex readings were higher in three of four categories when compared both to November and to last December.

The consumer expectations subindex fell 2.3% month over month to 86.1 and the current conditions subindex rose from 112.3 to 115.2 (up 2.6%).

Year over year, the current conditions subindex is up 1.3%, and the consumer expectations subindex is down up 2.1%.

The survey’s chief economist, Richard Curtin, said:

Consumer sentiment was unchanged from last month’s reading and has remained at very favorable levels since the start of 2017. In the two years from January 2017 to December 2018, the Sentiment Index was consistently above 90.0, averaging 97.5, identical to the early December reading. The last time the Sentiment Index was consistently above 90.0 for at least as long was from 1997 to 2000, recording a four-year average of 105.3. There are a number of plausible causes for the difference in consumer optimism from the late 1990’s to today, most of which revolve around job and wage prospects. As noted in last month’s report, as long as job and income growth remain strong, rising prices and interest rates will not cause substantial cutbacks in spending. In the early December survey, however, consumers did mention hearing much more negative news about future job prospects. … Moreover, most consumers understand that the goal of increasing interest rates is to slow the pace of economic growth. In past expansions, there was plenty of room between low and high interest rates to nudge up rates without damaging consumer spending. The gap has been squeezed to just a few percentage points and more caution is now warranted.