Partisan divide makes consumers’ mood harder to read

It has never been easy for companies to gauge Americans’ willingness to spend, but the nation’s deep partisan political divisions are making that judgment more difficult to render than usual.

It has never been easy for companies to gauge Americans’ willingness to spend, but the nation’s deep partisan political divisions are making that judgment more difficult to render than usual.

The mid-February reading of the University of Michigan’s Consumer Sentiment Index shows that expectations for the economy during the next six months are near a historic high among Republicans and near a historic low among Democrats.

That’s “troublesome,” Richard Curtin, chief economist of the university’s Surveys of Consumers, said in a statement.

The overall index fell to 95.7 from 98.5 at the end of January, which Curtin noted “remains quite favorable, with only five higher readings in the past decade.” The decline was centered in the survey’s Expectations Index, which dropped from 90.3 to 85.7.

“When asked to describe any recent news that they had heard about the economy, 30 percent [of survey respondents] spontaneously mentioned some favorable aspect of [President Donald] Trump’s policies and 29 percent unfavorably referred to Trump’s economic policies,” Curtin said.

“Thus a total of nearly six in ten consumers made a positive or negative mention of government policies. In the long history of the surveys, this total had never reached even half that amount, except for five surveys in 2013 and 2014 that were solely dominated by negative references to the debt and fiscal cliff crises.”

Despite the worrisome results, Curtin said “the best bet is that the gap will narrow to match a more moderate pace of growth. Nonetheless, it has been long known that negative rather than positive expectations are more influential in determining spending, so forecasts of consumer expenditures must take into account a higher likelihood of asymmetric downside risks.”

Reuters’ analysis was that although some of the euphoria about Trump’s victory — driven in part by his vow to boost the economy — has faded, consumers remain upbeat enough to keep spending.

"America is clearly in a politically charged environment, and that was evident in the survey results," Jim Baird, chief investment officer at Plante Moran Financial Advisors in Kalamazoo, Mich., told Reuters.

"The bottom line is that consumers remain understandably upbeat, supported by continued strength in the labor markets ... and appear to be of the positive mindset for spending growth to continue in the coming months."

Apart from the consumer confidence survey, there wasn’t much up-to-the-minute information in last week’s reports that would shed significant light on how consumers are trending.

The latest reading on consumer credit from the Federal Reserve was for December, and it was disappointing. Consumer borrowing rose at a pace of $14.2 billion, to a seasonally adjusted $3.76 trillion, which MarketWatch said was far below expectations. Consumer credit in November was revised upward to an increase of $25.2 billion from a previous estimate of $24.5 billion.

Richard Moody, chief economist at Regions Financial Corp., told MarketWatch that consumers have been “judicious and selective” in their use of credit cards since the financial crisis several years ago.

This week, economy watchers will see more recent data. Today there will be reports for January from the Census Bureau on retail sales, and for the same month from the Labor Department on the Consumer Price Index and core CPI, which strips out the volatile food and energy categories.

Expectations are that the price index rose 0.3 percent for the month and that core CPI rose 0.2 percent, matching their December performance. Retail sales are forecast to have risen 0.2 percent overall, and 0.5 percent, apart from motor-vehicle results.

On Thursday we will see January reports on housing starts and building permits. Starts are expected to have risen slightly, to 1.235 million at a seasonally adjusted annual rate, from 1.226 million in December.

Everything about the economy, but particularly interest rates and inflation, will be on the table when Fed chairman Janet Yellen delivers her semiannual monetary policy report to Congress, addressing a Senate committee today and a House panel on Wednesday.

Trump sharply criticized Yellen’s policies during the presidential campaign and Republicans in Congress also have faulted her leadership.

Jack Ablin, CIO of BMO Private Bank, told CNBC that under the circumstances he expects Yellen to be cautious because of the scrutiny the Fed is under and because it’s still not clear what steps the new president will take as he strives to stimulate the economy.

"I actually think Trump and Yellen are on the same page,” Albin said. “I think they want the same thing. 'Let the economy run hot, and drag your feet raising rates.' I don't see a lot of controversy. The controversy could be around the independence of the Fed and [Sen.] Rand Paul wanting to audit the Fed.”


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