Consumer Sentiment Slides for Third-Straight Month -- 2nd Update

By FeaturesDow Jones Newswires

A measure of U.S. consumer sentiment slid in January for the third-straight month, continuing to ease after reaching its highest level in more than a decade.

The University of Michigan on Friday said its consumer sentiment index was 94.4 in early January, down slightly from 95.9 in December. It dropped in December and November after hitting the highest level since 2004 in October.

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Economists surveyed by The Wall Street Journal had expected an increase in the index, a reading of 97.0 for January. A final reading for January will be released Feb. 2.

Consumers have been upbeat this year in multiple measures, buoyed by strong economic growth, low unemployment, and rising wealth related to property values and repeated stock market highs. Still, consumers viewed current economic conditions less favorably this month.

"The drop in the headline index...was entirely driven by a decline in the current conditions index," Michael Pearce, senior U.S. economist for Capital Economics said in a note to clients. "That is a bit strange considering that the labour market, which typically drives perceptions of current conditions, remains exceptionally strong with jobless claims falling to a 45-year low last week."

The consumers' expectations portion of the survey moved up slightly despite the fact that most respondents who mentioned the recently-passed tax overhaul thought the impact would be positive. This disconnect largely occurred because of uncertainties about the longer-term impact of the changes on consumers, said Richard Curtin, the survey's chief economist.

More than 60% of U.S. households would get tax cuts from the tax bill, while just 8% would pay more, according to analysis by the nonpartisan Joint Committee on Taxation. Those tax cuts expire after 2027, though most households would likely still see little effect on their take-home pay then.

"Some of the uncertainty is related to how much a cut or an increase people, especially high income households who live in high-tax states, face," Mr. Curtin said.

Friday's report also showed household expectations about long-term rising prices remained at its 2017 average, but inflation expectations over the next year inched up slightly to 2.8% in January from 2.7% in December. This change is important to Federal Reserve officials as they monitor ramped-up price increases to make decisions that control the flow of money; some economists think the higher people think prices are going to go, the higher prices actually tend to go.

"Inflation expectations had been beginning to trend a little higher over the past six months or so," Mr. Pearce said. "That will help to ease the concerns of some Fed officials that inflation expectations are too low. All this suggests that, barring a major crisis surrounding the debt ceiling, the Fed will press ahead and raise rates again at its March meeting."

Write to Sharon Nunn at sharon.nunn@wsj.com

(END) Dow Jones Newswires

January 19, 2018 12:26 ET (17:26 GMT)

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