February Consumer Sentiment Index Falls Short of Consensus

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The final University of Michigan Consumer Sentiment Index for February increased month over month from a January reading of 91.2 to February’s level of 93.8. When the preliminary February index score was reported earlier this month, the index reflected a slightly larger increase to 95.5.

The final reading is 5.9% lower than the final February 2018 index score of 99.7.

Economists polled by Bloomberg were expecting a January reading of 95.7.

The February subindex reading for expectations was lower compared both to January and to January 2018. The month-over-month index of current conditions was higher, but the year-over-year reading was lower.

The month-over-month consumer expectations subindex rose 5.6% from 79.9 to 84.4, and the current conditions subindex dropped from 108.8 to 108.5 (down 0.3%).

Year over year, the current conditions subindex dipped 5.9%, and the consumer expectations subindex sank by 6.2%.

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

Although sentiment was still above last month’s low, the bounce-back from the end of the Federal shutdown faded in late February. While the overall level of confidence remains diminished, it is still quite positive. Nonetheless, aside from last month, it was only lower in one month since Trump’s election, but barely, at 93.4 in July 2017. Consumers continued to react to the Fed’s pause in raising interest rates, balancing the favorable impact on borrowing costs against the negative message that the economy at present could not withstand another rate hike. Long-term inflation expectations remained near the lowest level recorded in the past half century.

Among households with incomes in the top third, the reduction in inflation expectations was even greater, falling to an all-time low of just 1.9%. Upper income households also anticipated a 3.0% gain in incomes, a gain well above those with incomes in the bottom two-thirds. This meant that real income expectations among upper income households rose to the highest level since the peaks recorded in the expansions in the 1980’s and 1990’s. … The data indicate that personal consumption expenditures will grow by 2.6% in 2019 and the strength in consumer spending will mean that the expansion is expected to set a new record length by mid-year. Indeed, if the current level of confidence is maintained, it would be consistent with a 2.6% growth in consumer spending in 2019.

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