Consumers grew slightly less optimistic headed into the holidays, however optimism still remains at historical highs, according to the Survey of Consumers conducted by the University of Michigan.
The Index of Consumer Sentiment decreased 1.7% from November’s 98.5 to 96.8 in December. This is also down 1.4% from 98.2 in December last year.
“Consumer sentiment has remained quite favorable although it continued to slowly recede in early December from its October cyclical peak,” Survey of Consumers Chief Economist Richard Curtin said. “Most of the recent decline was concentrated in the long-term prospects for the economy, while consumers thought current economic conditions have continued to improve.”
“Importantly, the largest decline in long-term economic prospects was recorded among Democrats, which reflected their concerns about the impact of the proposed changes in taxes,” Curtin said. “Perhaps the most important changes in early December were higher income expectations as well as a higher expected inflation rate in 2018.”
An article by Jill Mislinski for Advisor Perspectives explains what this confidence level 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.
Americans could start feeling more optimistic again soon, Curtin explained.
“Income gains have been slowly improving during the past year, and the data indicate that trend has continued,” he said. “In contrast, the rise in inflation expectations in early December was a surprise, and confidence in this finding must await confirmation in the months ahead before any inferences are drawn.”
The Current Economic Conditions index increased by 2.1% from November’s 113.5 and 3.6% from 111.9 in December 2016 to hit 115.9 in December this year.
However, this loss in the Index of Consumer Expectations plummeted 4.8% from 88.9 last month to 84.6 in December. This is also down 5.5% from 89.5 in December 2016.
“Buying plans for durables have improved in early December, largely due to attractive pricing, in contrast to the rise in the expected inflation rate,” Curtin said. “Overall, the data signal an expected gain of 2.7% in real consumption expenditures in 2018.”