Sunday, 25 of June of 2017

Economics. Explained.  

Consumer Sentiment

June 16, 2017

The final estimate of consumer sentiment for June fell 2.6 points from 97.1 to 94.5. The 98.5 reading for January was the highest level of confidence thus far in the business cycle.  But consumers’ political affiliation has created an interesting divide between Republicans and Democrats.

Richard Curtin, the chief economist for the Surveys of Consumers, said “The modest early June drop of 2.6 points in the Sentiment Index masks a much larger decline since June 8th. Prior to that date the Sentiment Index had averaged 97.7, but since June 8th, the Index fell to 86.7, a decline of 11.0 points. While this break corresponds with James Comey’s testimony, only a few consumers spontaneously referred to him or his testimony when asked to explain their views. Importantly, the decline was observed across all political parties, but the loss in confidence among self-identified Republicans since June 8th was larger than among Democrats.”

Based in part on the expectation of major changes in policy likely to be implemented by the end of the summer, we expect GDP growth for 2017 to be 2.4% and 2.8% in 2018.  We expect the economic speed limit to be raised from 1.8% to 2.8% within a few years.  That will accelerate growth in our standard of living.We expect worker compensation to increase 4.0% in 2017 vs. 3.0% last year. The core inflation rate should climb modestly in 2017 from 2.2% in 2016 to 2.4% this year and 2.7% in 2018.  Such a scenario would keep the Fed on track for the very gradual increases in interest rates that it has noted previously.  Specifically, we expect the funds rate to be 1.25% by the end of 2017 and 2.0% by the end of 2018.

The high level of  confidence was evident in both the current conditions and expectations components.

Consumer expectations for six months from now climbed from 87.7 to 84.7.

Consumers’ assessment of current conditions declined  in May from 111.7 to 109.6.

Trends in the Conference Board measure of consumer confidence and the University of Michigan series on sentiment move in tandem, but there are often month-to-month fluctuations.  Both series remain at levels that are consistent with steady growth in consumer spending at a reasonable clip of  about 2.5% in the quarters ahead.

Stephen Slifer

NumberNomics

Charleston, SC


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