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First Cut: Final February Consumer Sentiment Index revised lower to 93.8, matching the November 2016 reading

The University of Michigan Consumer Sentiment Index was revised lower to 93.8 in the final February report (previously 95.5) but was above the 91.2 of January. However, excluding January, confidence has been trending unevenly lower and the February reading was the same as the 93.8 in November 2016.

Consumers remain quite confident about present conditions — a strong labor market, low interest rates, and affordable gasoline prices are all contributors. However, the 108.5 in February is down a bit from the 108.8 in January and is the lowest since 107.3 in November 2016.

Confidence in conditions six months from now improved to 84.4 in February, but with the exception of 79.9 in January, the component is still the lowest since 84.4 in September 2017.

Levels of overall confidence remain consistent with moderate expansion and fairly optimistic consumers, but the burst of confidence that followed on the 2016 election has worn off. The index level suggest consumers are likely to continue to spend, especially since after improved wages and with prospects of further gains. However, it will be with greater caution.

Inflation expectations were not much changed for the 1-year measure. The level was at 2.6%, the lowest since 2.5% in November 2017, but not a significant drop from the 2.7% in the prior two months. More concerning was the 2.3% in February for 5-year inflation expectations, down three-tenths from the prior month and the lowest since 2.3% in December 2016. Much of that is probably due to anticipation of slower growth in 2019 and 2020, and for lower energy prices generally. However, it will provide the Fed with one more reason to hold on further rate hikes as it looks to sustain inflation near the 2% objective.

 

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