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March 2, 2018 Blog 1 min read
Consumer sentiment edges lower, but remains near 14-year high.

Line graph showing consumer sentiment - history

The University of Michigan’s Consumer Sentiment index edged down to 99.7 at the end of February, but declined less than anticipated by economists. Even so, that result was the second strongest since 2004, consistent with a very strong consumer outlook. Sentiment surged in the aftermath of the 2016 Presidential election, and has remained elevated since that time, as economic growth, job creation, and U.S. equity markets have been strong.

The strength of overall job market conditions and robust stock market returns in the past few years have boosted household financial positions, emboldening consumers. Recent market volatility hasn’t dimmed those spirits, as the recent decline took back only a small portion of those gains.

While the Fed remains focused on inflation and some have recently speculated about the growing risk that the economy could overheat, consumers remain sanguine, with little concern about rising inflation. Should inflation surprise to the upside, consumers will be surprised – a potential risk, but likely one that that still appears unlikely.

One item of note in the report was the divided views on the recently passed tax cuts, support for which seemingly broke down along partisan lines among survey respondents. Even so, the reduction in federal tax withholding is going to provide a boost to discretionary income for many households. And confident consumers with extra cash – regardless of their personal political views – are more likely to spend.

The bottom line is that the current strength of the economy is showing up in tight labor markets, hints of stronger wage growth, solid equity market returns, and a consumer sector that remains very optimistic and is spending accordingly.

Despite the potential for rising interest rates and oft-heated political discourse, the economy remains on a solid footing, with growth expectations still looking very good.

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