The consumer sentiment index from the University of Michigan slid to 95.7 in the first half of February, worse than expected and the weakest headline reading since November. Under the hood, surveyed Americans’ reported optimism about current conditions was little-changed in February while their outlook on the near-future (six months from now) deteriorated to a 3-month low. Moreover, consumers’ expectations for improved personal finances five years from now softened this month even as opinions of how their financial situation had fared over the past five years rose to a recovery high.
One thing clearly weighing on sentiment this month is wage growth, with many surveyed consumers’ expectations for income gains in the coming year deteriorating despite relatively positive outlooks on broader economic conditions. Although this is a somewhat disappointing report, the headline index is still near a recovery high and points to firming consumer spending. Further, there appears to be a political divide influencing sentiment measures, as the expectations index for surveyed Democrats is close to a historic low (indicating recession), while Republican’s expectations index is near its historic high (indicating expansion). Richard Curtin, Director of the University of Michigan survey, added that “While currently distorted by partisanship, the best bet is that the gap will narrow to match a more moderate pace of growth. Nonetheless, it has been long known that negative rather than positive expectations are more influential in determining spending, so forecasts of consumer expenditures must take into account a higher likelihood of asymmetric downside risks.”
Sources: Econoday, Twitter, Bloomberg, ZH, UoM, FRBSLPost author: Charles Couch