US Consumer Sentiment Revised Sharply Higher

The University of Michigan's consumer sentiment for the United States was revised sharply higher to 95.7 in January of 2018 from a preliminary of 94.4, beating market expectations of 95. It compares with 95.9 in December. Future expectations increased more than anticipated amid higher confidence in future job security and growth in wages as well as financial assets.

The gauge of current conditions came in at 110.5, up from 109.2 in the first estimate but below 113.8 in the previous month. Expectations rose at a faster 86.3 from a preliminary of 84.8 and 84.3 in December.

Also, Americans expect the inflation rate to be 2.7 percent next year, below 2.8 percent in earlier figures and matching the December's number. The 5-year expectation increased to 2.5 percent from 2.4 percent in December, matching the advance release.

Stock price increases and the passage of tax reforms were mentioned by all-time record numbers of consumers. To be sure, there were small offsetting declines among lower income households and residents of the Northeast. Consumers continued to expect growth in jobs and incomes, but anticipated a slightly higher inflation rate. 

Importantly, the motivating force behind purchase decisions has shifted from discounts on prices and interest rates to increased confidence in future job security and growth in wages as well as financial assets. This renewed sense of confidence was responsible for the recent declines in savings rates. The tax cuts will increase discretionary spending once higher energy bills due to the unusually cold weather are paid. Monetary policy will need to tighten in the year ahead, but given consumers' decade long experience with record low interest rates, only modest increases in interest rates will be sufficient to curb any excesses. Overall, the data signal an expected gain of 2.8% in real personal consumption expenditures during 2018.

US Consumer Sentiment Revised Sharply Higher

University of Michigan | Joana Taborda |
2/2/2018 3:11:34 PM