US Consumer Sentiment Revised Lower

The University of Michigan's consumer sentiment for the US fell further to 97.5 in November of 2018 from a preliminary reading of 98.3 and 98.6 in October. It is the lowest value in three months. Both current conditions and expectations were revised lower although the drops were more related to income than political party.

The gauge for consumer expectations declined to 88.1 from a preliminary of 88.7 and 89.3 in October and the current economic conditions subindex also fell to 112.3 from a first estimate of 113.2 and 113.1 in October. Inflation expectations for the year ahead eased to 2.8 percent from 2.9 percent, the same as in the previous estimate while the 5-year outlook rose to 2.6 percent from 2.4 percent, also matching earlier figures. 

Consumer sentiment has remained largely unchanged at very favorable levels during 2018, with the November reading nearly at the center of the eleven month range from 95.7 to 101.4. Although the data recorded a decline of 2.8 Index points following the election, the drop was related more to income than political party: among those with incomes in the bottom third, the Sentiment Index rose by 10.4 points and fell by 6.6 points among those in the top third of the income distribution. In contrast, the Sentiment Index remained unchanged among Democrats and Republicans prior to and following the election. 

Consumers' interest rate expectations have always traced the outlines of economic cycles. As expansions lengthen, the number of consumers who expect interest rate increases gradually increases. After some threshold is reached, however, consumers in large numbers abruptly anticipate future declines in interest rates. Sales declines are then accelerated not only by falling job and income prospects but also from the expectation of falling interest rates in the future. While there is no reason to anticipate a sudden change in interest rate expectations in the net few months, it is still an important task for the Fed to avoid hitting the threshold that causes widespread postponement of purchases.

US Consumer Sentiment Revised Lower

University of Michigan | Joana Taborda |
11/21/2018 3:11:49 PM