Doldrums, In February? Not In This Crowd

The University of Michigan’s Consumer Sentiment Index gained back about half what it lost in January during the federal government shutdown.

The index in the mid-month preliminary reading rose to 95.5 from January’s final of 91.2. It stood at 98.3 in the final December reading. The UM Index averaged 98.4 for all 2018, its highest average since 107.6 in 2000.

The early February gains reflect the end of the partial government shutdown as well as a more fundamental shift in consumer expectations due to the Fed's pause in raising interest rates. The lingering impact of the shutdown was responsible for some of the negative economic evaluations, and, at the time that these interviews were conducted, uncertainty about whether a second shutdown would occur continued to have a slight depressing impact on confidence.

Although the majority of consumers expected some additional rate hikes during the year ahead, that proportion has shrunk to the smallest level in the past two years. Perhaps more importantly, consumers' long-term inflation expectations fell to the lowest level recorded in the past half century.