Consumer Sentiment Takes Small Dip But Still Remains High

By at 11 November, 2017, 1:42 pm

by Raymond J. Keating-

Hey, Washington. People are watching. Substantive and positive policy changes are still needed.

That simple point might have received a bit of amplification from the University of Michigan Consumer Sentiment numbers for early November released on November 10. For early November, the index registered 97.8, which was down from 100.7 in October.

Still, it was up versus 93.8 in November of last year.

In fact, this consumer sentiment measure took a notable step up late last year, and has remained at that higher level ever since, even given the small decline in this latest early November measure.

As Richard Curtin, the survey chief economist, noted, “Consumer sentiment declined slightly in early November due to widespread losses across current and expected economic conditions. The losses were quite small as the Sentiment Index remained at its second highest level since January. Overall, the Sentiment Index has remained trendless since the start of the year, varying by less that 4.0 Index-points around its 2017 average of 96.8.”

Of course, the question is: Do consumers’ views line up with their actions?

Looking at real GDP data, during the post-World War II-era, real annual personal consumption expenditures (PCE) have grown at an average rate of 3.4 percent. But over the past decade of recession and a poor recovery/expansion, real PCE growth averaged only 1.7 percent. That is, half the historical rate. Over the past four quarters, annualized growth rates came in at 2.9 percent in the fourth quarter of 2016, 1.9 percent in the first quarter of this year, 3.3 percent in the second quarter, and 2.4 percent in the third quarter 2017. Those rates of growth are not terribly different from the previous four quarters – and remains below the historical average.

So, while consumer sentiment is up, it’s yet to translate into a notable acceleration in consumer spending. That’s not too surprising, given that consumers, as SBE Council has noted before, generally are followers. That is, they take their cue from what’s going on in terms of business growth and investment.

Therefore, it remains imperative that U.S. policymakers implement pro-growth tax and regulatory relief and reform that incentivize entrepreneurship and investment, which in turn will drive economic, income and employment growth. When consumers clearly see such measures being turned into reality, stepped-up consumer spending will follow.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP:  The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.

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