Survey of Consumers: Consumer Sentiment Falls in January

The Survey of Consumers, a closely-watched University of Michigan consumer sentiment gauge, fell to 90.7 in February from a reading of 92 in January. Economists anticipated a reading of 92 for the month.

“Consumer confidence continued its slow decline in early February, with its current level just below the average recorded during the 2nd half of 2015 (91.0),” said Surveys of Consumers chief economist, Richard Curtin. “The small early February decline was due to a less favorable outlook for the economy during the year ahead, while longer term prospects for the national economy remained unchanged at favorable levels.”

Still, even though slowing economic growth (0.7% in 4Q) is expected to slow the pace of job and wage gains, Curtin said consumers viewed their personal financial situations somewhat more favorably due to the expectation that the inflation rate would remain low for a considerable period of time.

“Indeed, consumers anticipated the lowest long term inflation rate since this question was first asked in the late 1970’s. No one would have guessed forty years ago, when high inflation was the chief cause of pessimism, that consumers would someday base their optimism on ultra-low inflation transforming meager wages into real income gains,” Curtin added. “The Fed’s goal of pushing the inflation rate upward must be simultaneously accompanied by comparable gains in wages to prevent declines in real incomes and living standards. Overall, the data indicate that real consumption expenditures can be expected to advance by 2.7% in 2016.”