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Consumer sentiment drops in December amid personal finance concerns

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Consumer sentiment fell slightly in December to 90.2, down almost 1 point from November’s revised reading, but 2.6 points higher than last December, according to the latest University of Florida consumer survey.

Among the five components that make up the index, three declined, and two increased.

The perception of the personal financial situation now compared with a year ago dropped 7.3 points to 79.6. The expectation of personal finances one year from now fell one-tenth of a point to 98.4.

Views of the U.S. economy were mixed: Expectations over the next year fell less than half a point to 84.4 while hopes for the U.S. economy over the next five years rose 2.5 points to 89.2.

Opinions as to whether now is a good time to buy a big-ticket item, such as a car or appliance, rose slightly more than half a point to 99.3, still 5.6 points lower than December last year.

The greatest declines were among women and people age 60 or older. Four of the five components decreased for women. For those aged 60 and over, perceptions of personal finance now compared with a year ago plummeted 13.6 points to 58.8.

Among those with annual incomes under $50,000, perceptions of personal finances now compared with a year ago dropped 6.1 points to a reading of 71.5, while for those with income of $50,000 or more per year, the score tumbled 11.1 points to 90.0 from a yearly high of 101.1 in November.

The downturn in consumer sentiment comes despite an anticipated healthy finish to this holiday shopping season by the Florida Retail Federation.

“The declines in perceptions of personal finance and the expectation of U.S. economic conditions over the next year possibly reflect the potential increase in the cost of borrowing in the medium and long run as a consequence of the announced raising of interest rates by the Federal Reserve,” said Hector Sandoval, director of the Economic Analysis Program at UF’s Bureau of Economic and Business Research.

Given the economic outlook, the Federal Reserve decided to raise interest rates gradually by a quarter percentage point Dec. 16, marking the end to the zero interest rate policy to support the economy since the Great Recession.

“Although a quarter-point increase is expected to have an imperceptible impact, it is a sensible first step to stay ahead of inflation, which will rise over the medium term, according to the Fed,” Sandoval said.

Nonetheless, this hike would still leave rates at historically low levels. Although it might take time for the adjustment in the federal fund rate (the rate banks charge each other for short-term loans) to percolate through the economy, this change will increase the cost of borrowing for firms and households. This change could eventually spread to other interest rates, including car loans, credit cards and mortgages.

“The economy is growing, with more jobs added every month, and despite the slight decrease in this month’s consumer sentiment, it is quite unlikely that these first policy changes on the federal funds rate will bring the economic expansion to an end,” Sandoval said.

Conducted Dec. 1-20, the UF study reflects the responses of 432 individuals who were reached on cellphones, representing a demographic cross-section of Florida.

The index used by UF researchers is benchmarked to 1966, which means a value of 100 represents the same level of confidence for that year. The lowest index possible is a 2; the highest is 150.

Details of this month’s survey can be found online.

Via University of Florida News.


CSI chart_Dec 2015

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