The Virginia Index of Consumer Sentiment fell modestly by 2.0 points over the third quarter of 2018, coming in at 93.8, but remains above the historical average. The dip is largely due to consumer expectations for the coming year. They report improved incomes from a year ago. The party gap increased, reaching the highest value since the 2016 Presidential election.
Figure 1. Virginia Consumer Sentiment, past two years (black=VAICS, blue=historical VAICS average)
Consumer continues decline, above historic average
The Virginia Index of Consumer Sentiment (VAICS) continues its retreat from earlier in 2018, falling 2.0 points over the last quarter. The national value is 96.2, also down almost two points since last quarter. Figure 2 shows the current index values for Virginia and the US: 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 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 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 about current conditions broke out over the last quarter and jumped to 104.9. The increase stems primarily from increased incomes compared to a year ago. Over 44% report their household finances being higher now compared to a year ago. Virginians are feeling prosperous.
In contrast, the VAICE retreated, pulling the overall measure of consumer sentiment down slightly from last quarter, although the VAICE and VAICS remain above their historic averages. Close to 62 percent of respondents report that now is a good time to buy large, durable items, and 44 percent anticipate improved household finances in the coming year. Consumers indicate that deals will be harder to come by soon due to anticipated increased prices. This matches the national economic data that prices are rising due to increased demand for goods and services, nudging the Federal Reserve Bank to increase rates.
Figure 3. Lifetime values for three Virginia indexes
Party divide grows to historic high
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. The difference grew to a high of 45 points after the election (February 2017), with Republicans more optimistic than Democrats, but closed slightly after the November 2017 Gubernatorial election.
The party gap increased again in the second quarter of 2018, reaching the second highest level since the 2016 election (42.4 points.) In the third quarter of 2018, the gap hit a new high of almost 49 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 rose to 3.9% 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 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 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 August 12 and August 19, 2018. 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 32 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.
A copy of the questions and all toplines may be found on the Roanoke College Poll website.