The Virginia Index of Consumer Sentiment (VAICS) increased by 1.4 points at the start of 2023, its highest value in one year. Virginians are increasingly optimistic as inflation continues to slow. The national inflation rate was 6.4% in January, pushing up the Index of Current Conditions by 4.5 points. The strong labor market also contributes to the improved sentiment. The national unemployment rate hit the lowest rate since 1969 in January 2023.
Consumer sentiment increased by 4.5 points in the first quarter of 2023 to 67.5, the highest value since February 2022, and continues the rebound since the historic low of 58.2 in May 2022. The primary driver behind the recovery in sentiment is slowing inflation. Inflation, as measured by the Consumer Price Index and capturing the price of goods and services bought by the typical household, hit the highest level in over 40 years in June 2022 (9%). Since then, inflation has rolled over, coming in at 6.4% in January 2023. Virginians are more optimistic about the economy when pressure on their wallets lessens.
In terms of sentiment, the slowing of price growth reinforces the strong labor market, and its headwind is easing. Nationally, the January unemployment rate was 3.4%, slightly below the pre-pandemic value of 3.5% and the lowest value since May 1969; the rate in Virginia is 3.0%. The tight labor market, along with an increased minimum wage and social security payments, bolstered spending and household income.
The Virginia Index of Current Conditions (ICC) is 60.2, up 4.5 points since the last quarter, although still well off its pre-pandemic February 2020 value of 103.5. Less than a quarter of respondents report that their finances are better today than a year ago despite increased home values and incomes. Virginians see their wages buying considerably less today than a year ago, which is holding the ICC back. Thirty-six percent of respondents believe that now is a good time to buy large, durable goods like refrigerators, reflecting their falling prices. Prices of durable goods fell by an average of 0.6% in each of the last three months and 1.3% over the last year. Virginians are less optimistic about current conditions than the nation.
Although sentiment is low in the commonwealth, there is relative optimism about the future. The Virginia Index of Consumer Expectations (VA ICE) is 72.2, down a modest 0.6 points since last quarter and almost 7.5 points above the national number. About 38% of respondents believe the coming five to 10 years will be a period of economic growth and prosperity, and 33% anticipate improved household finances in the coming year. The optimism is likely linked to falling price expectations. Almost 63% of Virginians anticipate lower price growth over both the near term (the coming year) and the long term (the next five to 10 years.) The short-run inflation expectation is 3.2%, while the long-run value is 3.1%.
“Consumer sentiment continues to steadily improve,” said Alice Louise Kassens, John S. Shannon Professor of Economics and Senior Analyst at the Roanoke College Institute for Policy and Opinion Research. “Consumer sentiment reflects how consumers feel about the economy, and it can also impact the future. If people are worried about the economy’s future, it can become a self-fulfilling prophecy, and we can push ourselves into a recession. The labor market remains strong and is a tailwind for the economy. Although inflation continues as the largest drag on sentiment, it appears to have rolled over and is moving in the right direction, albeit slowly. Markets continue to sort out the pandemic supply chain issues that impacted the global economy and are a primary driver of the current inflation woes. If the improvement continues without any other shock, prices should continue to trend downward. Consumer spending remains strong, which is contributing to inflation but keeping the economy out of recession.”
Interviewing for The Roanoke College Poll was conducted by The Institute for Policy and Opinion Research at Roanoke College in Salem, Virginia, between Feb. 12 and Feb. 21, 2023. A total of 708 completed interviews came from random telephone calls to 443 Virginians, and 265 responses were drawn from a proprietary online panel of Virginians.
A copy of the questions and all toplines may be found here.