The University of Michigan's consumer sentiment for the US declined to 91.2 in January of 2019 from 98.3 in December, but above a preliminary estimate of 90.7 and market expectations of 90.8. It was the weakest sentiment since President Trump was elected. The end of the shutdown caused only a modest boost in the Sentiment Index
The current economic conditions subindex dropped to 108.8 from a preliminary of 110 and 116.1 in December. The gauge for consumer expectations went up to 79.9 from a preliminary 78.3 but fell from 87 in December. Inflation expectations for the year ahead were unchanged at 2.7 percent and the 5-year outlook rose to 2.6 percent from 2.5 percent in December and was steady from the preliminary estimate.
Consumer sentiment remained at month-end at its lowest level since Trump was elected. The end of the shutdown caused only a modest boost in the Sentiment Index. The typical impact of such "crisis" events is short lived, with consumers quickly regaining lost confidence. That is unlikely to occur this time as the deadline for resolution has only been extended until mid February. If the standoff continues into late February, it could foster sustained declines in economic optimism among consumers. Even small spending cutbacks, occurring simultaneously across the majority of consumers, could push the economy into a recessionary downturn. Each proponent in the shutdown debate appears to put more weight on the political rather than on the economic implications of their actions. Continued strength in consumer spending is essential, especially given the volatile financial markets and weakened global growth prospects. It is of some importance to note that consumers still viewed their financial prospects quite positively (see the chart). Nonetheless, consumers were not as optimistic about future job gains, which was a consequence of the expected weakening of the economy due to the shutdown. Those losses could be sustained if the shutdown crisis lingers past mid February. There is still time to avoid a sustained decline in confidence, but it would require an end to the standoff. Indeed, if the current level of confidence is maintained, it would be consistent with a 2.6% growth in consumer spending in 2019.
2/1/2019 3:18:51 PM