The consumer expectations sub-index increased to 87.3 from a preliminary of 85.9 and 84.2 in the previous month. The gauge for current economic conditions declined less to 111.6 from a flash of 110.9 and 113.2 in October.
Inflation expectations for the year ahead remained unchanged at 2.5 percent, the same as in the preliminary release and those for the next five years increased more to 2.5 percent from an early 2.4 percent and 2.3 percent in October.
‘In 30 of the past 35 months the Sentiment Index was 95.0 or higher, a level of optimism second only to when the Index was above 100.0 for 34 out of 36 months from January 1998 to December 2000, averaging 106.0. Although impeachment proceedings occurred in both time periods, the current period is distinctive for the much sharper partisan divisions in the economic expectations among consumers as well as the wide gap in optimism between consumers and business firms. One side anticipates a recession, while the other side expects an uninterrupted expansion in the year ahead. To be sure, there is ample reason for both optimism as well as pessimism, but not the extreme differences voiced by these groups.
Most consumers are not so naive as to anticipate continued declines in inflation, unemployment, and interest rates, but few consumers anticipate sizable increases in these key economic factors anytime soon. Personal spending will be energized by record favorable evaluations by consumers of their personal financial situation, with gains expected across the entire income distribution, net increases in household wealth, the renewed appeal of price discounting, and reduced mortgage rates. Nonetheless, there is little point in dismissing the significant risks from potential negative shocks, associated with tariffs, impeachment, the presidential election, global growth, and geopolitical events. It has been differences in how these risks have been assessed that underlie the partisan differences among consumers and the gap in sentiment between the business and consumer sectors.’