Consumer confidence continued to slowly sink in December, with most of the decline among lower income households. The extent of the decline was minor, with the December figure just below the average for 2017 (95.9 versus 96.8). Indeed, the average in 2017 was the highest since 2000, and only during the long expansions of the 1960’s and 1990’s was confidence significantly higher. The recent strength was due to the second highest assessments of current economic conditions since 2000. This strength was offset by a slight increase in uncertainty about future economic prospects. Tax reform was spontaneously mentioned by 29% of all respondents, with nearly an equal split between positive and negative impacts on economic prospects. Party affiliation was the dominant correlate of people’s assessments of the tax legislation, with the long term economic outlook the most negatively affected. Buying plans for durables and vehicles remained unchanged at favorable levels. Most consumers will know more about the revised tax code when the new paycheck withholding amounts take effect in early 2018. While the mostly small gains in take-home pay may not spark an uptick in optimism, those gains would act to dampen any renewed pessimism. Overall, the data indicate that real personal consumption expenditures will expand by 2.6% in 2018.
Survey of Consumer Sentiment
Market Sensitivity: Medium, but can be high at turning points in the economy.
What Is It: Near-real-time assessment of consumer attitudes on the business climate, personal finance, and shopping.
Most Current News Release on the Internet: www.sca.isr.umich.edu/press-release.php
Home Web Address: http://www.sca.isr.umich.edu
Release Time: 9:55 a.m. (ET); preliminary numbers are released on the second Friday of each month. Final figures come out the last Friday of the same month. Only the results of the final survey are published on the Web site.
Source: Thomson Reuters/University of Michigan.
Revisions: Low. Preliminary numbers, out midmonth, are revised two weeks later.
Fixed-income investors worry about consumer exuberance because that can translate into greater spending and faster economic growth.
Equity managers prefer to see consumers upbeat because they then have a greater propensity to spend on goods and services. This can increase revenues, corporate profitability, and stock values as well.
Foreign demand for dollars will be strong as long as the U.S. economy is growing and interest rates are attractive compared to other countries. Because consumer expenditures account for more than $6 out of every $10 spent in the economy, foreigners favor seeing a happy American consumer.