Recent Market Volatility Not A Concern for Consumers

Talking Points:

- The preliminary figure of U. of Michigan Sentiment survey in February was 99.9; highest level of the year

- Inflation expectations were flat both short and long-term

- Consumers’ shift expectations from favorable low-interest rates and prices

- US Dollar Index sees little benefit from consumer surveys

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Sentiment: A Big “Thumbs Up” for Tax Reform

The University of Michigan has released the preliminary results of their consumer confidence survey for February. This month consumers were unfazed by the recent volatility coming from the equity and debt markets. In early February, consumer sentiment rose to its second highest level since 2004. For households in the top third of the income distribution, the Sentiment Index rose to 112.8, which is the highest level since the last peak of 114.2 recorded in 2007, 2004, and 2000. Stock market gyrations were overshadowed in the minds of consumers largely due to rising incomes, employment growth, and a net favorable perceptions of the tax reforms. U. of Michigan stated that, “when asked to identify any recent economic news they [consumer] had heard, negative references to stock prices were spontaneously cited by just 6% of all consumers.”

Additionally, the largest proportion of households reported an improved financial situation since 2000, and expected larger income gains during throughout 2018.

Government Approval: A Big “Thumbs Down”

In stark contrast, favorable references to government policies were cited by a mere 35% of respondents in February. This figure was unchanged from January, and marked the highest level recorded in over 50 years.

Higher Interest Rates Along with Inflation

Consumers also expected higher interest rates during the year ahead. In fact, the highest proportion of consumers had this expectation since August 2005. Respondents also anticipated a slightly higher inflation rate. Conversely, the fewest consumers in decades mentioned a favorable impact of low prices and interest rates as job and income security is much more favorable among consumers.

U. of Michigan projects a 2.9% gain in real personal consumption expenditures during 2018.

Below is a summary for the preliminary results of the February University of Michigan Surveys:

Chart 1: US Dollar Index 15-minute (February 15 - 16, 2017)

The preliminary reading from U. of Michigan has had little impact on the US Dollar Index. This morning, DXY covers around 89. At the time that this was written DXY traded slightly lower at 88.87.

--- Written by Dylan Jusino, DailyFX Research