Consumer Sentiment Unexpectedly Falls to a Six-Month Low

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Consumer sentiment unexpectedly declined in January to a six-month low as American households viewed the economy less favorably, a University of Michigan report showed Jan. 19.

Highlights of Preliminary Michigan Sentiment for January

• Sentiment index dropped to 94.4 (estimated 97) from 95.9 in December.

• Current conditions gauge, which measures Americans’ perceptions of their finances, decreased to 109.2, the lowest since November 2016, from 113.8.

• Expectations measure improved to 84.8 from 84.3.

• Year-ahead inflation climbed to 2.8%, the highest since April 2016, from 2.7%.

Key Takeaways

The decline in sentiment included a decrease in a measure of buying conditions for big-ticket goods, indicating consumer spending may slow early this year after a solid holiday-shopping season.

The setback in purchasing conditions was mainly due to less- attractive pricing, according to the University of Michigan. That was reflected in a pickup in increases in expected inflation rates over the coming year and longer term.

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At the same time, the expectations index remained stable, with 70% of respondents saying they thought the impact of the tax reform act will be positive. What’s more, the survey showed lingering strength in personal finances. Improved finances were reported by half of all respondents, matching the 2017 average which was the best in 17 years.

Official’s Views

“The disconnect between the future outlook assessment and the largely positive view of the tax reform is due to uncertainties about the delayed impact of the tax reforms on the consumers,” Richard Curtin, director of the University of Michigan consumer survey, said in a statement.

“While long-term inflation expectations remained at its 2017 average level and short term inflation expectation inched upward, consumers continued to remain very optimistic about the low national unemployment rate,” Curtin said.

Other Details

• Inflation rate over next five to 10 years seen at 2.5%, up from 2.4% in December.

• 37% mentioned attractive pricing in early January, down from 47% a month earlier.

• Favorable buying conditions for motor vehicles and homes remained at lofty levels: University of Michigan.

• Income gain expected by households in year ahead rose to 2% this month from 1.9% average in 2017.