The Virginia Index of Consumer Sentiment is up almost 10 points since last quarter, coming in at 98.0, one tenth off its historical high. The jump continues the reversal begun last quarter, just missing the August 2016 record, and comes over a period of turmoil in the stock market and new legislation, including the tax reform bill and budget deal.
Figure 1. Virginia Consumer Sentiment, past two years (black=VAICS, blue=historical VAICS average)
Consumer sentiment just off record high
The Virginia Index of Consumer Sentiment (VAICS) continues its turn-around from the end of 2017, jumping almost ten points over the last quarter to 98.0. The preliminary national value is 99.9 which climbed a point and a half since last quarter. Figure 2 shows the current index values for Virginia and the U.S.: current, expectations, and overall sentiment, respectively (left to right.) Gains in both the Virginia and national indexes occurred despite significant volatility in the stock market.
Figure 2. Current Virginia and US Consumer Sentiment measures
Figure 3 shows the historical values for the VAICS and its two sub-indexes, the Index of Current Conditions (VAICC) and the Index of Consumer Expectations (VAICE). Overall sentiment continues to be driven by beliefs about current economic conditions rather than expectations of the future, although both measures turned sharply upward last quarter. Consumers overwhelmingly cite rising incomes as the source of positivity in the Commonwealth. Over half of respondents report that now is a good time to buy large, durable items and 46% say their household finances are improved from last year. Although consumer expectations are low relative to current conditions, the VAICE remains well above its average with 46% reporting that they believe their household finances will improve over the coming year.
Figure 3. Lifetime values for three Virginia indexes
Opinion of tax reform and budget deal falls across party lines
Several pieces of legislation recently passed into law generating substantial public attention. The tax bill - signed by President Donald Trump in December 2017, and the first of its kind in over 30 years - is met with mixed opinion. Overall, 41 percent of respondents favor the legislation while 38 percent oppose it. The law maintains the seven income tax brackets but alters the values associated with each. Some Virginians will pay more income taxes in April 2019, while others will pay less. Figure 4 shows opinion for the tax reform bill by various income levels (not the income tax brackets.) Except for the $75,000-$100,000 income category, both support and opposition to the legislation increase with income and support exceeds opposition when family income surpasses $35,000 per year. Over sixty percent of respondents believe that the law will have either no impact or a positive impact on them personally and only 7 percent both oppose the reform and believe their household finances will worsen in the coming year. Opinion about the law falls more firmly across party lines, with general support from Republicans and lack thereof from Democrats.
Figure 4. Tax reform opinion (%) by income
Earlier this month, Trump signed a budget deal which reopened government after a brief shutdown. The budget raises federal spending but funds programs for two years, stopping the cycle of fiscal shutdowns for the duration. Figure 5 shows respondent opinion of the budget deal by party affiliation. Democrats are firmly opposed to the legislation, while Republicans are mixed, mirroring the debate in Washington. Respondents are also mixed regarding their opinion of the budget deal and the future of the economy.
Figure 5. Budget deal opinion (%) by party
Short-term inflation expectations fell by three-tenths of a point in the Commonwealth, while long-term expectations fell on seven-tenths of a point, as shown in Figure 6. The measures indicate direction of overall price growth anticipated by Virginians over the next year and next 5-10 years, respectively. These expectations are close their historical averages, suggesting respondents are not concerned with abnormal price growth. Price stability is important for investment and retirement planning.
Figure 6. Short and long term inflation expectations
Interviewing for The Roanoke College Poll was conducted by The Institute for Policy and Opinion Research at Roanoke College in Salem, Va. between February 19 and February 26, 2017. A total of 604 Virginia residents 18 or older were interviewed. Telephone interviews were conducted in English. The random digit dial sample was obtained from Marketing Systems Group and included both Virginia landline and cell phone exchanges so that all cell phone and residential landline telephone numbers, including unlisted numbers from Virginia exchanges, had a known chance of inclusion. Cell phones constituted 33 percent of the completed interviews.
Questions answered by the entire sample of 604 consumers are subject to a sampling error of plus or minus approximately 4 points at the 95 percent level of confidence. This means that in 95 out of 100 samples, like the one used here, the results obtained should be no more than 4 points above or below the figure that would be obtained by interviewing all consumers who have a telephone. Where the results of subgroups are reported, the sampling error is higher. Sampling weights were constructed using Virginia Census 2010 data by age, race and gender groups. Quotas were used to ensure that different regions of the Commonwealth were proportionately represented. The margin of error was not adjusted for design effects due to weighting.
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