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US Consumers Still Confident, But Virus Concerns Emerge

Jay Brahach February 14, 2020

Consumer sentiment in the US remains strong in February, with the University of Michigan Consumer Sentiment Index reporting an increase to 100.9, beating the January figure of 99.8 and surpassing expectations by 1.4%.

On balance, US consumer sentiment has been largely positive with the latest report almost matching the two-year peak of 101.4, reported in March 2018. The expectations index, used to indicate long term economic conditions, increased to 92.6, a 4.8% increase from January. Much of this confidence can be attributed to US consumers having a positive outlook on personal finances, with 58% of survey participants reporting an improvement in their finances, the highest reported gain since the survey began.

The US dollar is struggling to capitalize on this positive data, with the trade-weighted dollar index reporting a modest 0.03% gain after this data release.

A deeper dive into the report gives a possible indication as to why. While US consumers are positive about their current position, a rising tide of uncertainty about the future is beginning to encroach on consumer’s minds.

Expectations of consumer income in the year ahead were largely unchanged from last month, with only 41% of survey participants expecting gains. The size of expected year ahead gains even took a small hit, declining to 2.1%, down from 2.3% in January.

The dip in consumer expectations can be attributed to a couple of factors. Coronavirus made it first appearance in the survey, with 7% of participants in the survey citing it as a phenomenon which can affect them in the year to come. Despite this being a relatively small percentage – with the majority of consumers believing the Chinese economy to be the only one affected by the virus – the fact that it was mentioned at all shows its emerging prevalence in the wider consumer consciousness.

Reports this morning that Fiat-Chrysler has had to shut down one of its Eastern European operations, citing an impact on supply chains coming out of China in the automotive space, suggest it could rapidly become a bigger negative for consumer confidence.

As well as the coronavirus, it is election year in the US. As is common, consumers are beginning to think about the impact a change in leadership will have on their personal finances, with 10% of consumers indicating the election is likely to have a direct impact on US fiscal policy – and consumers will keep an ever closer eye on the unfolding election narrative as a result.

Jay Brahach
Account Executive & Currency Analyst