Consumer sentiment dips slightly but remains high

Consumer sentiment remained high in February but fell slightly from the 13-year peak reached in the previous month.

The Index of Consumer Sentiment was 96.3 in February, down 2.2 percent from 98.5 in January but up 5 percent from 91.7 a year earlier, according to the University of Michigan Surveys of Consumers. Economists surveyed by Bloomberg had forecast the February index to be 96.

David Nice, senior economist at Diane Swonk Economics, attributed the high level of optimism among consumers to the rise in stock and home prices, key components of most Americans’ wealth. Wage increases and improvements in the job market have also contributed to the “elevated” levels of confidence, Nice said in an interview.

“Overall, the Sentiment Index has been higher during the past three months than anytime since March 2004,” stated Richard Curtin, chief economist of the Surveys of Consumers, on its website. However, “unprecedented partisan divergence” was responsible for driving the Consumer Sentiment Index upward, not widespread confidence about the new administration’s economic impact, Curtin explained. Democrats are expecting recession while Republicans expect “robust growth,” he wrote, predicting that the two extremes will ultimately converge.

The Index of Consumer Expectations, which measures how consumers view conditions in the future, dropped 4.2 percent to 86.5 from January’s 90.3. The February index was still 5.6 percent higher than a year ago, when it stood at 81.9.

“While the expectations of Democrats and Republicans largely offset each other, the overall gain in the Expectations Index was due to self-identified Independents, who were much closer to the optimism of the Republicans than the pessimism of the Democrats,” Curtin said in the statement.

The Index of Current Economic Conditions was 111.5, up .2 percent from the previous month’s 111.3 and up 4.4 percent from February 2016.

The Consumer Sentiment Index, compiled by the University of Michigan, draws from surveys of 500 households every month. Like the Consumer Confidence Index, which is compiled by the Conference Board, the Sentiment Index measures consumer attitudes toward spending and toward the economy at large.

The Consumer Confidence Index for February will be released Feb. 28.

Photo at top: Shoppers at CVS in Evanston. (Christine Huang/MEDILL)