Michigan Consumer Sentiment slips, inflation expectations decline

American consumer confidence fell in March for the first time in three months suggesting that the boost from the tax cuts had ended and that last year’s near two decade levels of optimism are not sustainable even with close to record employment. 

The University of Michigan preliminary Index of Consumer Sentiment slipped to 96.9 from 98.4 in February, missing the 98.0 median estimate but remaining stronger than any other time since 1997 to 2000.

Reuters

The decline was fostered by the drop in the Index of Consumer Expectations which declined to 85.8 from 88.8 in February. It had been forecast to fall slightly to 88.5.

Descriptions of consumer’s satisfaction with their current economic situation stayed upbeat with the index rising to 114.2 in March from 113.3 in February, beating the 112.5 predictions.

Confidence had surged after the presidential election in 2016 as consumers anticipated an improving economy. The sustained performance of the labor market and rising wages have given households’ the best sustained gain in disposable income since the recession over the last two years .

Sentiment had fallen sharply in January as the partial government shutdown and equity losses in December weighed on confidence.

The government closure ended on January 25 and equities have soared about 20% since late December. When combined with the plentiful jobs, rising incomes, very few layoffs and lower interest and mortgage rates, the broad indexes of consumer attitudes have stayed buoyant.

Non-farm payrolls had plunged in February with the economy registering only 33,000 new jobs though wages remained strong and the very low incidence of initial jobless claims indicated that the labor market continued healthy. Payrolls returned to trend in March with 196,000 new positions.

Reuters

Consumer are anticipating a slower rise in prices. Inflation expectations for the next 12 months dropped to 2.4% from 2.5% in February and have fallen from 2.9% last August. The rate expected over the next five years dropped to 2.3% equaling a 50 year low