Although consumer optimism increased after the election of President-elect Donald Trump, 2017 saw a dip in that optimism.
The Index of Consumer Sentiment decreased slightly to 98.1, down 0.1% from 98.1 in December but still up 6.6% from 92 in January 2016, according to the Survey of Consumers conducted by the University of Michigan.
“The post-election surge in optimism was accompanied by an unprecedented degree of both positive and negative concerns about the incoming administration spontaneously mentioned when asked about economic news,” Surveys of Consumers Chief Economist Richard Curtin said. “The importance of government policies and partisanship has sharply risen over the past half century.”
The Current Economic Conditions index increased to 112.5 in January, the highest level since 2004. This is up 0.5% from December’s 111.9 and up 5.7% from last year’s 106.4.
The Index of Consumer Expectations, on the other hand, decreased to 88.9, down from 89.5 in December but still up 7.5% from last year’s 82.7.
An article by Jill Mislinski for Advisor Perspectives explains what this means historically:
The Michigan average since its inception is 85.4. During non-recessionary years the average is 87.6. The average during the five recessions is 69.3.
“From 1960 to 2000, the combined average of positive and negative references to government policies was just 6%; during the past six years, this proportion averaged 20%, and rose to new peaks in early January, with positive and negative references totaling 44%,” Curtin said. “This extraordinary level of partisanship has had a dramatic impact on economic expectations.”
Curtin also explained what these sentiments could mean for economic growth in 2017.
“Needless to say, these extreme differences would imply either strong growth or a recession,” he said. “Since neither is likely, one would anticipate that both extreme views will be tempered in the months ahead.”
“Nonetheless, it should be noted that among the majority of consumers who referred to neither positive nor negative views on government, the Expectations Index was a strong 90.9, supporting a real consumption growth of 2.7% in 2017,” Curtin concluded.