Consumer Confidence Holds Up, but Not in Expectations

The University of Michigan announced that the Index of Consumer Sentiment for February 2016 was still lower than the prior month at 91.7. This is down from a reading of 92.0 in January, but it also represents a full one point uptick from the preliminary February report of 90.7 seen two weeks ago.

Bloomberg was calling for the revised reading in February to come in at 91.0. For a reference, a year ago sentiment was 95.4.

This is one of the reports that was bolstered by the current conditions, where the Current Economic Conditions was 106.8 in February, versus 106.4 in January.

Weakness was seen handily noted in the expectations. The Index of Consumer Expectations was down to 81.9 in February from 82.7 the prior month and from 88.0 a year earlier. That is a mere 1.0% drop on the monthly figure, but expectations were down a sharp 6.9% from February of 2015.

Isn’t all this happening when consumer spending and income stay up and while unemployment remains so low?
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The official statement from the University of Michigan showed that consumer confidence nearly recovered all the small loss that had been seen in the preliminary February reading. The official quote said:

Although consumers are not as optimistic as at the start of last year, the Sentiment Index is just 6.5% below the cyclical peak of 98.1 set in January 2015. Such a small decline is hardly consistent with the onset of a downturn in consumer spending. By way of contrast, in January 2007, the Sentiment Index reached a cyclical peak of 96.9 and then declined by 27% to 70.8 in the February 2008 survey. At that time, the sharp drop came with the early warning that “declines of this magnitude have always been associated with subsequent recessions.” Needless to say, the current decline of just 6.5% hardly merits a recession warning, although it does indicate a somewhat slower expansion in consumer expenditures-to 2.7% in 2016, down from 3.1% in 2015. Most of the decline from last year’s peak has been in how consumers view year-ahead prospects for the economy, while the outlook for their personal financial situation has improved to its best level in ten years. Rather modest wage gains as well as very low inflation have meant that consumers expect increases in their real incomes during the year ahead. Consumers’ most important concern involves how much the slowdown in GDP growth will affect employment growth. At present, consumers anticipate only a slight negative impact on jobs.