The Virginia Index of Consumer Sentiment rocketed up almost four points in February 2020 coming in at 97.2, only a point and a half away from the historic peak, despite a volatile stock market and coronavirus fears. The improvement is driven by overall positive belief in the current and future U.S. economy. Forty-nine percent of respondents believe that the next few years will be a period of strong economic growth and prosperity and over 60 percent think that now is a good time to buy large durable items. Sentiment in Virginia is thus far relatively immune to Coronavirus concerns with only 1.2 percent of respondents citing it in their commentary.
Figure 1. Virginia Consumer Sentiment, past two years (black=VAICS, green=5-year historical VAICS average)
Figure 1 shows that sentiment grabbed its historical February gains, expanding upon the upward trend that started in the summer of 2019. Forty-three percent of respondents report that their household finances are improved from a year ago, in keeping with the national news about a strong labor market and growing wages. Nationally, the February jobs report noted an increase of 273,000 jobs in an already tight labor market while wages increased 0.3% between January and February.
Figure 2. February 2020 Virginia and U.S. Indexes of Current Conditions, Consumer Expectations, and Consumer Sentiment (left to right)
Virginia parallels the U.S.’s consumer sentiment strength as illustrated in Figure 2. The national November value is 101.0, slightly above that in the Commonwealth. Nationally consumer sentiment continues to average values not seen since the robust times of 1998-2000. In the Commonwealth, consumer sentiment is only 1.5 points away from its all-time high.
Figure 3. Five-year historical values for three Virginia indexes
Figure 3 shows the three consumer sentiment measures over time. The Virginia Index of Consumer Expectations is 93.1 up four points since November. Forty-nine percent believe that the next three to five years will be a period of economic growth and prosperity compared to 30 percent who expect a period of high unemployment and stagnation. Consumer confidence in the future of the economy is coupled with improvements in consumer beliefs about the current economy. The Virginia Index of Current Conditions is up three points since November 2019. Sixty-one percent of respondents believe that now is a good time to buy large durable goods, indicating healthy consumer spending into the spring.
Only 1.2 percent of Virginians cited coronavirus as a major concern, closely following the national February consumer sentiment report in which less than 5 percent of respondents mentioned the virus. Figure 4 illustrates trends in Google search history in Virginia for the term “coronavirus” between February 7 and March 6. The values shown are relative to the peak search day included in the time series which was March 6. The black markers on the chart show the data collection period for this survey. Searches were relatively low during the collection period (10-20 percent of the maximum). A projected 1.4 percent would likely report it as a concern today in Virginia.
Figure 4. Google searches for “coronavirus” in Virginia
Both short- and long-term price expectations nudged upward since November, hitting values more typically seen in the past few years. Respondents are sensitive to the prices that they see around them on a daily basis and might be influenced by rising home and gasoline prices, but not in an alarming way. Nationally, current inflation remains low although demand for homes and other financed purchases may increase as the Federal Reserve recently lowered rates, reducing the cost of borrowing.
Figure 5. Short- and long-term inflation expectations
“Consumer incomes are rising, displacing coronavirus fears and stock market volatility (for now.) People are extremely confident in the U.S. economy,” Dr. Alice Kassens, senior analyst for IPOR, said. “Unemployment is low, prices are low and stable, and incomes are rising. The economy is churning along and that is what people notice the most. They largely ignored the impeachment quarrels and are doing the same now with uncertainly pertaining to the coronavirus. That of course may change if the virus spreads in a significant way in the United States. For now, it appears to be additional noise for the typical consumer.”
Interviewing for The Virginia Consumer Sentiment and Inflation Expectations Report was conducted by The Institute for Policy and Opinion Research at Roanoke College in Salem, Virginia between Feb. 9 and Feb. 18, 2020. A total of