Tuesday, 22 of January of 2019

Economics. Explained.  

Consumer Sentiment

January 18, 2019

The final reading for consumer sentiment for January fell 7.6 points to 90.7 versus 98.3 in December.  After peaking in March at 101.4 sentiment has gradually declined.  However, at 90.7 sentiment remains at a very lofty level.

Richard Curtin, the chief economist for the Surveys of Consumers, said, “The loss was due to a host of issues including the partial government shutdown, the impact of tariffs, instabilities in financial markets, the global slowdown, and the lack of clarity about monetary policies.”  Curtin added, “iI does not yet indicate the start of a sustained downturn in economic activity. It is the strength in personal finances that will continue to support consumption expenditures at favorable levels in 2019. Nonetheless, consumers now sense a need to buttress their precautionary savings, which is typically done by reducing their discretionary spending.”

His statements are true, but only if the factors he notes remain negative.  Since the beginning of the year the stock market has rallied sharply.  The U.S. and China seem somewhat close to a trade deal.  Mortgage rates have dropped from 5.0% to 4.5%.  The Fed has said it intends to leave rates unchanged through midyear.   Our sense is that in the months ahead consumer sentiment will rebound as these issues are resolved.

We expect GDP growth of 2.8% in 2019 versus 3.1% last year.  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 3.7% in 2019 vs. 2.6% this year. The core inflation rate (excluding the volatile food and energy components) should climb by 2.2% in 2018 and 2.3% in 2019.  Such a scenario would keep the Fed on track for no rate hikes through the middle of year and only a couple of increases thereafter.  Specifically, we expect the funds rate to rise 0.5% or so from 2.4% at the end of 2018 to 3.0% by the end of this year.

The modest September decline was attributable to the expectations component.

Consumer expectations for six months from now fell from 87.0 to 78.3.

Consumers’ assessment of current conditions declined from 116.1 to 110.0.

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 2019.

Stephen Slifer


Charleston, SC

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