Consumer sentiment, a measure of consumers’ confidence in the economy rose this month. Some of the factors contributing to this have been low unemployment and optimism about the new tax regime. This confidence far outweighs market volatility for American consumers.
The consumer-sentiment index was 99.9 in February, compared to 95.7 in January. The preliminary report overestimated economists’ expectations for February. A final reading and report will be released March 2nd, 2018.
This month’s rise came after consumer sentiment had dropped for the previous three months. Alternatively, February’s reading was the highest since October 2017 when the index hit 100.7, the highest level since before the recession.
“Rising incomes, employment growth, and a positive perception of the impact of the tax reforms have all contributed to an increase in consumer sentiment” said Keith Knutsson of Integrale Advisors.
The rise in the latest index might be the first sign of the boost to consumers from lower taxes. Furthermore, this suggests that even if consumption growth slows in the Q1, spending will continue to grow at a solid rate over 2018.
The consumer sentiment report showed households’ expectations about inflation have yet to change. This month, consumers expected a 2.7% rise in inflation over the next year, a figure that has not changed since 2017. Currently, financial markets, the Federal Reserve, and consumers expect borrowing costs will rise in 2018.
The Fed’s next policy meeting is March 20th, 2018. Investors currently predict an 83.1% probability that the central bank will raise rates a quarter percentage point from their current range of between 1.25% and 1.5% at their next meeting.