Saturday, 19 of August of 2017

Economics. Explained.  

Consumer Sentiment

August 18, 2017

Consumer sentiment for August jumped 4.2 points to 97.6 after having fallen 1.7 points in July. The resurgence in sentiment in August was entirely attributable to an increase in the expectations component.  The 98.5 reading for sentiment in January was the highest level of confidence thus far in the business cycle.

Richard Curtin, the chief economist for the Surveys of Consumers, said “Too few interviews were conducted following Charlottesville to assess how much it will weaken consumers’ economic assessments. The fallout is likely to reverse the improvement in economic expectations recorded across all political affiliations in early August. Moreover, the Charlottesville aftermath is more likely to weaken the economic expectations of Republicans, since prospects for Trump’s economic policy agenda have diminished.”

Based in part on the expectation of major changes in policy likely to be implemented eventually, we expect GDP growth for 2017 to be 2.3% 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 be reasonably steady this year at 1.9% thanks to a price war in the cell phone industry and falling prescription good prices caused by intimidation from President Trump.   However prices should rise by 2.5% 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 increase in sentiment was evident in both the current conditions and expectations components.

Consumer expectations for six months from now declined from 80.5 to 89.0.

Consumers’ assessment of current conditions rose  in August deteriorated from  113.4 to 111.0 .

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 the quarters ahead.

Stephen Slifer

NumberNomics

Charleston, SC


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