(Bloomberg) -- Consumer sentiment unexpectedly declined in January to a six-month low as American households viewed the economy less favorably, a University of Michigan report showed Friday.
Highlights of Michigan Sentiment (January, preliminary)
The decline in sentiment included a decrease in a measure of buying conditions for big-ticket goods, indicating consumer spending may slow early this year after a solid holiday-shopping season.
The setback in purchasing conditions was mainly due to less- attractive pricing, according to the University of Michigan. That was reflected in a pickup in increases in expected inflation rates over the coming year and longer term.
At the same time, the expectations index remained stable, with 70 percent of respondents saying they thought the impact of the tax reform act will be positive. What’s more, the survey showed lingering strength in personal finances. Improved finances were reported by half of all respondents, matching the 2017 average which was the best in 17 years.
“The disconnect between the future outlook assessment and the largely positive view of the tax reform is due to uncertainties about the delayed impact of the tax reforms on the consumers,” Tuba Suzer-Gurtekin, assistant director of the University of Michigan consumer survey, said in a statement.
“While long-term inflation expectations remained at its 2017 average level and short term inflation expectation inched upward, consumers continued to remain very optimistic about the low national unemployment rate,” Suzer-Gurtekin said.
What Our Economists SayDespite an unexpected decline in the preliminary result for January consumer sentiment, the level of consumer optimism remains near cyclical highs. The latest drop, driven by a modest worsening in consumers’ perception of their finances, contradicts the recent pickup in personal income growth, and therefore is more a reflection of consumers’ perception of their financial situation rather that what is actually happening.
-- Yelena Shulyatyeva, Bloomberg Economics
- Inflation rate over next five to 10 years seen at 2.5 percent, up from 2.4 percent in December
- 37 percent mentioned attractive pricing in early January, down from 47 percent a month earlier
- Favorable buying conditions for motor vehicles and homes remained at lofty levels: University of Michigan
- Income gain expected by households in year ahead rose to 2 percent this month from 1.9 percent average in 2017
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