While Republicans and Democrats continue to grow apart, Independents became more confident over the past three months. Overall, however, Americans are slightly less confident in February.
The Index of consumer sentiment dropped 2.2% from last month’s 98.5 to 96.3 in February, according to the Survey of Consumers conducted by the University of Michigan. However, the index increased 5% from February 2016.
This is a up slightly from the drop at the beginning of February to 95.7. Overall, the Sentiment Index has been higher over the past three months than any time since March 2004.
“Normally, the implication would be that consumers expected Trump's election to have a positive economic impact,” Surveys of Consumers Chief Economist Richard Curtin said.
“That is not the case since the gain represents the result of an unprecedented partisan divergence, with Democrats expecting recession and Republicans expecting robust growth,” Curtin said. “Indeed, the difference between these two parties is nearly identical to the difference between the all-time peak and trough values in the Expectations Index – 64.6 versus 64.4.”
Curtain explained the expectations of Democrats and Republicans largely offset each other, and the overall gain in the Expectations Index was due to self-identified Independents, who were closer to the optimism of the Republicans than the pessimism of the Democrats. The February Expectations Index was 55.5 among Democrats, 120.1 among Republicans and 89.2 among Independents.
The Current Economic Conditions index increased slightly by 0.2% from January’s 111.3 and 4.4% from last year’s 106.8 to 111.5 in February.
However, the Index of Consumer Expectations decreased 4.2% from January’s 90.3 to 86.5 in February. This is up 5.6% from last year’s 81.9.
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.
“Since neither recession nor robust growth is expected in 2017, both extremes must eventually converge,” Curtin said. “Although the data indicate a growth rate of 2.7% in consumption during 2017, the data also indicate we can expect greater volatility and discretionary spending differences across subgroups.”