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First Cut: Preliminary February Consumer Sentiment Index up after end of government shutdown

The preliminary University of Michigan Consumer Sentiment Index for February rose to 95.5 from 91.2 in the final January report. Consumers’ perceptions of current conditions were little changed at 110.0 in early February from 108.8 in January. Six-month expectations rebounded to 86.2 in the present month from 79.9 in January.  Six-month expectations account for about 60% of the index.

Consumer sentiment heaved a sigh of relief over the end of partial federal government shutdown, although a full exhale may have to wait for the final reading when it is sure that another shutdown will not take place. However, if President Trump declares a national emergency to fund his border wall project, the likely consequence will be another sharp erosion of confidence in the near future. The revision in the final February report could go either way.

Consumer expectations for inflation dipped in early February. The rapid declines in energy prices late in 2018 look to be sticking, so consumers are willing to express more confidence in lower inflation. The 1-year expectations reading was down two-tenths to 2.5% and the 5-year expectations were off three-tenths to 2.3%. The report also noted that the prospect that the Fed will hold off on further rate hikes contributed to the lower expectations.

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