ANN ARBOR—The February bounce back in consumer sentiment following the end of the Federal shutdown was relatively small, according to the latest University of Michigan Surveys of Consumers.

Aside from January’s depressed level due to the shutdown, sentiment was only lower in one month since President Trump’s election, but barely, at 93.4 in July 2017. While the overall level of confidence remains slightly below the 2018 average, it is still quite positive, said U-M economist Richard Curtin, director of the surveys.

The data indicate that personal consumption expenditures will grow by 2.6 percent in 2019, unchanged from the level recorded in 2018. Importantly, the strength in consumer spending will mean that the expansion will set a new record length by midyear.

“The most important finding from the February survey was the decline in long-term inflation expectations to a 50-year low,” Curtin said. “The decline in inflation expectations was paced by households with incomes in the top third. Coupled with continued positive expectations for growth in household income, these households anticipated the highest expected inflation-adjusted growth in incomes since the peaks recorded in the expansions of the 1980s or 1990s.

“While there was no improvement in real income expectations among the bottom two-thirds of the income distribution in February, these lower income groups have posted significant gains in real income expectations in the past few years.”

Federal Reserve’s Impact on Expectations

Consumers continued to react to the Fed’s pause in raising interest rates, balancing the favorable impact on borrowing costs against the negative message that the economy at present could not withstand another rate hike.

This resulted in slightly more favorable current buying plans for homes and vehicles as well as somewhat less favorable prospects for the national economy. For consumers, this meant that the unemployment rate was more likely to post small increases than to continue to decline in the year ahead.

Personal Finances Remain Strong

Consumers’ evaluations of their current finances remained favorable as 49 percent reported improved finances, barely below last month’s 50 percent and down from the average of 54 percent in the last half of 2018. Worsening finances were reported by 25 percent of all consumers, the highest proportion recorded since Trump was elected.

A positive financial outlook for the year ahead was reported by 42 percent of all consumers, the same as last February; just 9 percent of all consumers expected to be worse off financially in the year ahead. An increase in household income of 1.7 percent across all households was anticipated in February, down from 2.2 percent last month and last year. Those under age 45 anticipated annual income gains of 4.7 percent and those with incomes in the top third expected gains of 3.0 percent.

Consumer Sentiment Index

The Consumer Sentiment Index was 93.8 in the February 2019 survey, up from 91.2 in January but well below last February’s 99.7. The Expectations Index rose to 84.4 from 79.9 in January but remained significantly below last February’s 90.0. The Current Conditions Index fell slightly to 108.5 from 108.8 in January and 114.9 in last February’s survey.

About the Surveys

The Surveys of Consumers is a rotating panel survey based on a nationally representative sample that gives each household in the coterminous U.S. an equal probability of being selected. Interviews are conducted throughout the month by telephone. The minimum monthly change required for significance at the 95-percent level in the Sentiment Index is 4.8 points; for Current and Expectations Index the minimum is 6 points.

Surveys of Consumers
U-M Institute for Social Research