Tax Reform, Stock Prices Keep Confidence High

ANN ARBOR, Michigan, Feb. 2 -- The University of Michigan issued the following news release:

Consumer sentiment has remained largely unchanged for more than a year at very favorable levels, according to the University of Michigan Surveys of Consumers.

The January Sentiment figure was just 0.2 Index-points below December's, and just 1.1 points below the 2017 average of 96.8--which was the highest yearly average since 2000, said U-M economist Richard Curtin, director of the surveys.

Stock price increases and tax reforms were mentioned by all-time record numbers of consumers. To be sure, there were small offsetting declines among lower income households and residents of the Northeast.

Consumers continued to expect growth in jobs and incomes, but anticipated a slightly higher inflation rate during the year ahead. Overall, the data indicate that real personal consumption expenditures will expand by 2.8 percent in 2018.

"Perhaps the most significant change in economic assessments involves the motivating factors behind discretionary purchase decisions," Curtin said. "These forces have shifted from discounts on price and interest rates to increased confidence in future job security, growth in wages and financial assets.

"This basic sense of economic confidence only occurs after uncertainty is substantially reduced. Unlike earlier in the expansion when consumers were apprehensive about future prospects, this renewed sense of confidence has been responsible for spending decisions that pushed the savings rates to recent lows. Further gains in the pace of spending will crucially depend on the impact of tax cuts on spending decisions."

Tax Reforms Viewed Positively on Balance

In the January survey, spontaneously favorable references to government economic policies were made by 35 percent of all consumers, the highest level recorded in more than a half century. Most of these references involved the recently passed tax reforms.

Across all respondents and all open-ended questions, 22 percent of consumers spontaneously mentioned that the recent tax reforms would have a favorable impact, 6 percent cited a negative impact, and 4 percent mentioned both negative and positive aspects of the tax reform. Moreover, consumers who favorably mentioned the tax legislation had values on the Expectation Index that were twice as high as those with negative views.

Gains in Jobs, Wages, Stock Prices

The finances of consumers continued to benefit from gains in jobs, wages and financial assets. When asked to explain in their own words how their personal finances had changed, the highest proportion ever recorded mentioned that the value of their household's asset holding had increased. These favorable reports were concentrated among those with incomes in the top third, with 29 percent reporting increased net wealth holding--the second highest since 32 percent in 2007.

Expected income gains also improved slightly, as consumers anticipated an annual gain of 2.1 percent, up from 1.9 percent one month and one year ago; those under age 45 anticipated an income gain of 3.4 percent.

Consumer Sentiment Index

The Consumer Sentiment Index was 95.7 in the January 2018 survey, marginally below the 95.9 in December, and down from 98.5 in January 2017. The Current Conditions Index was 110.5 in January, down from last month's 113.8 and last year's 111.3. The Expectations Index was 86.3 in January, between last month's 84.3 and last year's 90.3.

About the Survey

The Survey 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 (http://umich.edu/~umsurvey)

U-M Institute for Social Research (http://home.isr.umich.edu/)