Consumer Sentiment Remains Strong in First Week of 2020 Despite Middle East Conflicts

The Morning Consult index of consumer sentiment rose to 114.8 last week for its 12th consecutive week-over-week gain. This week’s score deteriorated sharply on Friday and Sunday, likely a reaction to the U.S. drone attack early Friday morning that killed Iranian Lieutenant General Qasem Soleimani.

The index is based on the firm’s daily survey of some 7,500 U.S. adults and is higher than it was at this time last year. The 52-week low of 104.5 was posted on January 21, 2019.

The gap between the index’s component scores narrowed further in the week ending January 5, with the future expectations score rising by 1.1 points to 115.3 and the current conditions score rising by 0.3 points to 114.0.

According to Morning Consult, “It is unlikely that tensions with Iran – as they currently stand – act as the exogenous shock that causes consumer spending to contract.” The firm’s report does not include consumer reaction to Wednesday’s retaliatory missile attack by Iran against two U.S. bases in Iraq.

The analysts cite three reasons that consumer spending will continue to be strong: “First, increases in oil prices are unlikely to harm consumers to the same extent as they have in the past. Oil prices remain relatively low, and the U.S. produces more oil than it imports. In other words, increases in oil prices are likely to be partially offset by the job and wage gains driven by increased oil production. Second, the fall in consumer confidence was likely partially driven by last week’s fall in stock prices, which at least partially reflected a correction to historically elevated prices. Third, current levels of confidence remain elevated compared to where they were 6 months ago.”

Morning Consult asks the same questions of its survey respondents as does the University of Michigan’s twice-monthly Survey of Consumers. The difference is in the number and method of the survey. The Michigan sentiment index is based on 600 telephone interviews with U.S. adults while Morning Consult’s results are based on an ongoing survey comprising 7,500 daily interviews and 210,000 monthly interviews, all conducted online.

The survey breaks down the data it collects by some key demographic groups. Here are some of the results of that breakdown.

Households with income of less than $50,000 annually posted an overall sentiment score of 108.6 last week, up 0.5 points from the previous week. Among households with income between $150,000 and $200,000, the overall score slipped by 0.9 points, and overall sentiment among households with incomes between $200,000 and $250,000 rose by 0.9 index points to post a score of 124.2. Households with incomes over $250,000 posted a drop of 3.1 index points to 125.7.

Among African Americans, overall sentiment dipped by 0.9 points to 112.5, while rising by 1.3 points to 115.8 among Hispanics.

By industry sector, Americans employed in the professional and business services industry posted the largest week-over-week rise in overall sentiment, up by 4.1 points to 120.6. Sentiment among health care workers rose by 2.9 points to 119.4, while sentiment fell by 4.3 points in the leisure and hospitality sector and by 8.0 points among the real estate and property workers.

Top executives posted a 0.3 point decline in overall sentiment for a score of 123.9. Sentiment among CEOs leading businesses with more than 100 employees rose by 3.0 points to 142.0, while sentiment among CEOs of business with 21 to 100 employees saw a 2.9 point increase to 126.4. Top executives at businesses with one to five employees posted an index score of 118.7, down by 1.8 points week over week.

Looking at responses to questions about future economic conditions, top executives of companies with more than 100 employees posted an index score of 152.5, up by 3.3 points week over week. At companies with one to five employees, executives dropped the score by 2.1 points to 120.7.

Manufacturing workers’ view of current economic conditions rose by 2.6 points last week to 127.7, while workers in agriculture workers added 1.8 points to their index score, sending it to 129.6.

Company executives’ opinion of current economic conditions remained unchanged last week with the index score rising of 122.2, equal to the 52-week high.

When asked about 12-month expectations for their personal finances, Americans between the ages of 18 and 24 added 1.8 points from their index score to post a score of 140.5. Among 35-to-44-year-olds, the index score rose 2.5 points to 148.8. These older millennials are the most optimistic of any age group, while boomers over the age of 65 are the least optimistic with an index score of 109.1.

Looking at this Friday’s jobs report from the Labor Department, Morning Consult commented, “While aggregate consumer confidence was higher in early December than in early November, consumers’ attitudes regarding their personal financial conditions were relatively unchanged. The surge in consumers’ views of their personal financial conditions began after the December reference period ended. This data suggests that the jobs report on Friday may not tell the full story of the strength of U.S. consumers.”