April 13, 2017
Consumer sentiment for April rose 1.1 points to 98.0 after having risen 0.6 point in March. 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 “While current economic conditions were not affected by partisanship, this was not true for the component about future economic prospects: Among Democrats, the Expectations Index signaled that a recession was imminent, while among Republicans the Index indicated that a new era of robust economic growth was ahead. Overall, the sentiment data has been characterized by rising optimism as well as by rising uncertainty due to the partisan divide. Optimism promotes discretionary spending, and uncertainty makes consumers more cautious spenders. This combination will result in uneven spending gains over time and across products.”
Based in part on the expectation of major changes in policy likely to be implemented in the first six months of his regime, we expect GDP growth for 2017 to be 2.4% and 2.7% 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 2.5% if productivity gains largely counter the faster growth of wages. 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 86.5 to 86.9.
Consumers’ assessment of current conditions climbed from 113.2 to 115.2.
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 at a reasonable clip of about 2.5% in the quarters ahead.