ANN ARBOR—Consumer confidence continued to slowly sink in December, with most of the decline among lower income households, according to the University of Michigan Surveys of Consumers.
The extent of the decline was minor, with the December figure just below the average for 2017 (95.9 versus 96.8), said U-M economist Richard Curtin, director of the surveys. Indeed, the average in 2017 was the highest since 2000, and only the long expansions of the 1960s and 1990s were significantly higher.
The strength was due to assessments of current economic conditions that were the second highest since 2000, offset by a slight increase in uncertainty about future prospects, Curtin said. Overall, the data indicate that real personal consumption expenditures will expand by 2.6 percent in 2018.
"Tax reform was spontaneously mentioned by 29 percent of all consumers when they were asked about recent economic developments," Curtin said. "There was nearly an equal split between those that anticipated positive as negative impacts on their future economic prospects. Party affiliation was the dominant correlate of people's assessments of the tax legislation, with the long term economic outlook most negatively affected.
"Most consumers will know more about the revised tax code when the new paycheck withholding amounts take effect in early 2018. While the mostly small gains in take-home pay may not spark an uptick in optimism, those gains would act to dampen any renewed pessimism."
Favorable Personal Finances
Consumers reported the most favorable assessments of their current finances in 17 years. In the December survey, and for 2017 as a whole, 50 percent of all consumers reported that their finances had improved.
Improved financial prospects for the year ahead was expected by 40 percent of all consumers in December, and also equal to the average 2017 reading. This was only marginally below the yearly peak since 1960 of 43 percent recorded in 2000.
Consumers were somewhat more concerned about real income advances as they anticipated slightly lower income gains and a slightly higher inflation rate, Curtin said.
Continued Strength in Discretionary Purchases
The continued strength in buying plans for household durables has been due to more frequent price reductions, which are expected to continue following the holidays, according to Curtin. The vehicle market has benefited equally from price discounts as well as low interest rates.
Home-buying conditions drew as many positive as negative references to prices, although higher prices will cause an increase in the supply of available homes for sale, Curtin said. Changes in tax laws are not expected to have much impact on the overall market, although it will have some negative impact on homes with large mortgages in locales with high tax rates.
Consumer Sentiment Index
The Consumer Sentiment Index was 95.9 in December 2017, down from 98.5 in November and last December 98.2. The Current Conditions Index was 113.8 in December, above last month's 113.5 and last year's 111.9. The Expectations Index was 84.3 in December, down from 88.9 in November and 89.5 in last December's survey.
About the survey
The Survey of Consumers is a rotating panel survey based on a nationally representative sample that gives each household in the coterminous U.S. an equal probability of being selected. Interviews are conducted throughout the month by telephone. The minimum monthly change required for significance at the 95-percent level in the Sentiment Index is 4.8 points; for Current and Expectations Index the minimum is 6 points.