Consumer Sentiment Climbs Even Higher in January

The Survey of Consumers, a closely-watched gauge of consumer sentiment, climbed even higher in January to 95.7, up from 94.4 and beating the 95.0 median forecast. The Current Economic Conditions ticked down to 110.5 from 113.8 in December and Index of Consumer Expectations increased to 86.3 from 84.3.

“Consumer sentiment has remained largely unchanged for more than a year at very favorable levels,” Survey of Consumers chief economist Richard Curtain said. “The January Sentiment figure was just 0.2 Index-points below December’s, and just 1.1 points below the 2017 average of 96.8–which was the highest yearly average since 2000.”

Noteworthy, the increase in stock prices and the passage of tax reforms were mentioned by an all-time high number of consumers. The small offsetting declines among lower income households and residents of the Northeast are indicate of how inaccurate news reports can influence consumer sentiment. Only about 5% of Americans will see their taxes increase, to include those in high tax states such as those.

“Consumers continued to expect growth in jobs and incomes, but anticipated a slightly higher inflation rate,” Mr. Curtain added. “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.”

The Personal Income and Outlays report from the Bureau of Economic Analysis (BEA) showed a significant decline in the savings rate along with substantial increases in consumer spending. The Survey of Consumers may offer some insight on that.

“This renewed sense of confidence was responsible for the recent declines in savings rates,” Mr. Curtain noted. “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.”

Next data release: Friday, February 16, 2018 for Preliminary February data at 10: 00 AM EST