The Virginia Index of Consumer Sentiment increased modestly by close to three points over the last quarter of 2018, coming in at 96.6, eight points above the five-year average. The increase is largely due to gains in consumer expectations for the coming year. The party gap closed following the November election after reaching the highest value since the 2016 presidential election in August 2018.
Figure 1. Virginia Consumer Sentiment, past two years (black=VAICS, blue=5-year historical VAICS average)
Consumer sentiment jumps into the holiday season
The Virginia Index of Consumer Sentiment (VAICS) reverses its mid-year retreat, rising 2.8 points over the last quarter. The national value is 97.5, which is 13.3% above its historical value. Figure 2 shows the current index values for Virginia and the U.S.: current, expectations, and overall sentiment, respectively (left to right.) Both remain near post-recession highs, in keeping with the positive economic and labor market news, and despite stock market volatility, election discord, and uncertainty about international policy.
Figure 2. August 2018 Virginia and US Indexes of Current Conditions, Consumer Expectations, and Consumer Sentiment (left to right)
Figure 3 shows the five-year historical values for the VAICS and its two sub-indexes, the Index of Current Conditions (VAICC) and the Index of Consumer Expectations (VAICE). All values increased from last quarter, the VAICE particularly so. The increase stems primarily from increased incomes compared to a year ago. Over 44% anticipate the next five years to be a period of strong economic growth and prosperity and 38% believe their household finances will improve over the next year. Virginians are feeling encouraged heading into the holiday season, 67% of whom plan to spend more on gifts compared to last year. Virginians plan to spend liberally this holiday season. Over 64% believe that now is a good time to buy large durable items due to both rising income and strong deals found in stores or online.
Figure 3. Five-year historical values for three Virginia indexes
The Roanoke College Poll is funded by Roanoke College as a public service.
Party divide shrinks after election
Figure 4 shows the Virginia Index of Consumer Sentiment by party affiliation. Prior to the 2016 presidential election, Democrats were considerably more optimistic about the economy than their right-leaning peers. The party gap closed heading into the election, and flipped afterward. In the third quarter of 2018, the gap hit a new high of almost 49 points. After the November 2018 election, Democrat sentiment jumped eight points while Republican sentiment fell by five points. A similar trend is seen at the national level and suggests that respondent beliefs about the current and future economy depend, in part, upon the parties holding the highest offices and if they match personal affiliations.
Figure 4. Virginia Index of Consumer Sentiment, Democrat and Republican
Note: Lines = Virginia Index of Consumer Sentiment (blue=D, red=R), Dashed Lines = VAICS Historical Average
Inflation expectations hold firm for short-term
Short-term inflation expectations held firm from last quarter, coming in at 2.9 percent. Long-term expectations dipped slightly to 3.8% as shown in Figure 5. Suggestions of continued incremental rate increases by the Federal Reserve Bank and rising mortgage rates are well-known and publicized events which are likely driving the expectations. The measures indicate direction of overall price growth anticipated by Virginians over the next year and next five to ten 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 5. 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 November 11 and November 19, 2018. A total of 602 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 close to 30 percent of the completed interviews.
Questions answered by the entire sample of 602 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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