Site icon WallStreetWindow.com

Shifting Political Views and Covid Concerns Pull Down Consumer Sentiment – Robert Hughes (01/20/2021)

The preliminary January results from the University of Michigan Surveys of Consumers show overall consumer sentiment fell in early January and remains well below pre-lockdown levels. Policy expectations and recent Covid developments were key themes driving the weaker results.

Overall consumer sentiment decreased to 79.2 in early January, down from 80.7 in December, a 1.9 percent decline (see chart). From a year ago, the index is down 20.6 percent. The sub-indexes both fell in early January. The current-economic-conditions index dropped to 87.7 from 90.0 in December (see chart). That is a 2.6 percent decline and leaves the index with a 23.3 percent decrease from January 2020. The second sub-index — that of consumer expectations, one of the AIER leading indicators — sank 0.8 points or 1.1 percent for the month to 73.8 (see chart) and is 18.5 percent below the prior year.

All three indexes remain well below the pre-pandemic levels, with the Current Economic Conditions index 22.0 percent below its 2018-2019 average and the Index of Consumer Expectations 15.5 percent below the recent average. Combined, the overall index sits 18.5 percent below the pre-pandemic average (see chart).

According to the report, “Consumer sentiment posted trivial declines in early January despite the horrendous rise in covid-19 deaths, the insurrection, and the impeachment of Trump. Two offsetting shifts helped narrow the January loss in sentiment: the covid-19 vaccines and a partisan shift in expectations due to the anticipated impact of Biden’s economic policies.” The report goes on to add, “The partisan shift in expectations was due to anticipated changes in economic policies; the shift was as large as the opposite shift that accompanied Trump’s election.”  Furthermore, “The Trump and Biden partisan gaps in expectations are too extreme to be justified by economic fundamentals. Rather, the partisan gaps are rooted in sharply different policy preferences, with one side favoring economic growth and efficiency, and the other side giving top priority to greater equity and fairness in the distribution of income and wealth.”

The report suggests consumer sentiment is being driven more by ideology than personal circumstance. With resurging infections, renewed government restrictions on consumers and businesses, political instability, and ongoing intense partisanship, headwinds to recovery are strengthening. Recent deterioration in several key economic measures adds to concern for the outlook.

THIS ARTICLE ORIGINALLY POSTED HERE.

Exit mobile version