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US consumer sentiment hits second-highest level since 2004
US consumer sentiment rose to its second-highest level since 2004 in February despite lower and much more volatile stock prices, according to a reading from the University of Michigan.
The consumer sentiment index jumped to 99.9 from 95.7 in January and 96.3 in February last year.
Meanwhile, the index of current economic conditions printed at 115.1 from 110.5 last month and 111.5 in January 2016, while the index of consumer expectations rose to 90.2 from 86.3 in January and 86.5 last February.
Surveys of Consumers chief economist Richard Curtin pointed out that even among households in the top third of the income distribution, the sentiment index rose to 112.8, the highest level since the prior peak of 114.2 was repeatedly recorded in 2007, 2004, and 2000.
"Stock market gyrations were dominated by rising incomes, employment growth, and by net favourable perceptions of the tax reforms. Indeed, when asked to identify any recent economic news they had heard, negative references to stock prices were spontaneously cited by just 6% of all consumers. In contrast, favourable references to government policies were cited by 35% in February, unchanged from January, and the highest level recorded in more than a half century.
"In addition, the largest proportion of households reported an improved financial situation since 2000, and expected larger income gains during the year ahead. To be sure, higher interest rates during the year ahead were expected by the highest proportion of consumers since August 2005. Consumers also anticipated a slightly higher inflation rate, although the year-ahead inflation rate has remained relatively low and unchanged for the past three months. Purchase plans have been transformed from the attraction of deeply discounted prices and interest rates that outweighed economic uncertainty, to being based on a sense of greater income and job security as the fewest consumers in decades mentioned the favourable impact of low prices and interest rates. Overall, the data signal an expected gain of 2.9% in real personal consumption expenditures during 2018."
Andrew Hunter, US economist at Capital Economics, said the rise in the Michigan index may be the first sign of the boost to consumers from lower taxes and suggests that, even if consumption growth slows in the first quarter, spending will keep growing at a solid rate over this year as a whole.
"Both the current conditions and expectations indices rose by around five points. The former will have been supported by the continued strength of the labour market, but also appears to have been boosted by the recent tax cuts which started to show up in most workers' pay this month. Meanwhile, the rise in the expectations index shows that consumers have brushed off the recent stock market volatility and further gradual rise in gasoline prices."