RC Poll: Va Consumer Optimism Grows, Long Term Inflation Expectations Rise
Virginians weighed in on their opinion of the economy for the second time this year. The Roanoke College Poll interviewed 603 Virginians about their financial situation, general business conditions now and in the future, their inclination for purchasing durable goods, and their thoughts on prices in the near-term. Indexes of current conditions, consumer expectations, consumer sentiment and price expectations were constructed using methods similar to the popular national measures out of the University of Michigan. This is the fifth survey from IPOR on Virginia consumer sentiment and the fourth for price expectations. Both measures are released quarterly beginning this year.
Sentiment rises despite sequester, improved labor market and new state policy
The Virginia Index of Consumer Sentiment (VAICS) rose to 80.9 in May, a 12 percent increase since the first quarter of 2013. The measure remains below that of the nation. The preliminary national May value is 83.7. Figure 1 illustrates both the national and state-level values for consumer sentiment.
Figure 1. Consumer sentiment over time, Virginia and the United States
Data downloaded from FRED 5/20/2013; blue line is US Consumer Sentiment; black line is a two year moving average; orange bars are VA Consumer Sentiment
The improving sentiment in the Commonwealth is led by optimism about the future economy and household finances. More than 37 percent of those surveyed believe their finances will improve over the year and more than 41 percent expect improving business conditions. Buoyed by this confidence, the Virginia Index of Consumer Expectations (VAICE) increased 15 percent since the first quarter to 78.9. The national value for current conditions is below that of Virginia, which preliminarily comes in at less than 75. Although to a lesser degree, Virginians also report improved household finances and business conditions since a year ago. The Virginia Index of Current Conditions (VAICC) rose 11 percent to 84.0. The nation is considerably more positive on the current conditions as University of Michigan reports a preliminary current conditions value of 97.5, the highest reading since October of 2007. Figure 2 shows the three indexes for both Virginia and the United States.
Figure 2. Consumer Indexes May 2013, Virginia and United States
Optimism in Virginia, both current and future, is likely correlated with the improvements in the labor markets. Figure 3 shows monthly initial unemployment claims and the unemployment rate for the Commonwealth since January 2011. The six-month moving average shows both reduced volatility and a downward trend in initial unemployment claims. Claims in April 2013 dropped below 20,000 for the first time in several years. Simultaneously, the state unemployment rate dropped to 5 percent in April.
Prospects for the Commonwealth's continued job growth were bolstered this month when Governor Bob McDonnell signed HB 2313, "Virginia's Road to the Future." The bill was the state's first significant transportation legislation in almost three decades. Chmura Economics & Analytics, a Richmond-based economics consulting firm, projects that the bill will sustain more than 13,000 new jobs annually over the next five years. Consumer sentiment is also likely aided by the recent reductions in gasoline prices. The mid-month statewide average is $3.40 per gallon for regular gasoline, down 30 cents per gallon since February. Additionally, consumer wealth has risen due to record highs in the stock market.
Figure 3. Virginia labor market, not seasonally adjusted
Northern Virginia and Tidewater lead, Southside and Shenandoah Valley cautious
Disparities in consumer opinion persist across the Commonwealth. Figure 4 shows the three indexes for the six regions of the state. Northern Virginia (NOVA) and the Tidewater lead with VAICS's of 86.7 and 84.2, respectively. The regions are particularly high on current conditions. The VAICC is 89 in NOVA and 86.2 in the Tidewater. Close to 45 percent of respondents in those regions believe that it is a good time to buy large durable items, the vast majority citing low prices as the reason. This optimism is despite the sequester cuts that are likely to hit the two regions the hardest due to a heavy reliance on government spending and contracts. The VAICE is only 4 percent lower than the current condition indexes in these regions, suggesting either respondents are not concerned about the impact of the sequester in the coming year, or other positives, such as the rising stock market and lower fuel prices, are offsetting those apprehensions.
Southside and the Shenandoah Valley lag all indexes. Of particular concern in both regions is the VAICE. The measure dropped almost 10 percent in the Shenandoah Valley since the first quarter to 64.4, the lowest in the Commonwealth and 24.5 percent lower than NOVA. Southside was slightly better, and showed significant improvement in all measures since the first quarter of 2013. However, the current conditions index is almost 20-percent higher than the expectations measure indicating respondents in the Southside are cautious about the future. Sixty-two percent of Southside respondents anticipate periods of widespread unemployment in the next five years.
Figure 4. Indexes across the Commonwealth, May 2013
The regional differences in sentiment likely stem from several sources. The unemployment rates in Southside counties are considerably higher than in others across the Commonwealth, as shown in Figure 5. For example, Danville reported a rate of 7.3 percent in March 2013, which was more than two points higher than the March state unemployment rate of 5.2 percent. There are 1.8 unemployed persons per job opening in Danville and 11 percent more job seekers than employers amongst those with no more than a high school diploma. The labor market conditions continue to weigh on the region, which is likely reflected in the sentiment values. In contrast, NOVA (5.2 percent) and the Tidewater (5.7 percent) report unemployment rates closer to the state average. Employment in construction jumped almost 11 percent in Virginia Beach in March 2013, and labor demand exceeded supply for those with low- and high-educational status during the first quarter of 2013.
Figure 5. Unemployment rates by county, Virginia
Image source: Bureau of Labor Statistics, March 2013
Short-term inflation expectations unchanged, rise in long-term
Short-term inflation expectations, shown in Figure 6, held firm since the first quarter of 2013 at 3.5 percent. Almost 68 percent of Virginians believe that prices will rise in the next year, slightly lower since the first quarter of 2013. In contrast, national short-term inflation expectations have not been above 3.5 percent since August 2012 and were 3.1 percent in April 2013. This is the first opportunity to check the robustness of the state-wide short-run inflation expectation report as actual inflation measures for the period February 2012-February 2013 are now available. As noted in Figure 6, actual inflation, measured as the year-over-year percent change in the Consumer Price Index (CPI, all items), was 1.6 percent for the Washington D.C. area, the only local CPI measure available from the Bureau of Labor Statistics. This suggests that survey respondents over-estimated inflation in February 2012 by a factor of two. Meanwhile, long-term inflation expectations in Virginia jumped to 5 percent in the second quarter of 2013, the highest value since the measure was first reported in February 2012. Eighty-three percent of respondents believe that prices will rise in the next five to ten years. A robustness check for the long-term measure will not be possible until February 2017.
Figure 6. Inflation expectations, Short- and long-term
Interviewing for The Roanoke College Poll was conducted by The Institute for Policy and Opinion Research at Roanoke College in Salem, Va., May 6-10, 2013. The sample consisted of 603 residents of Virginia. The sample of phone numbers was prepared by Survey Sampling Inc. of Fairfield, Conn. and was created so that all residential and cell phone numbers, including unlisted numbers, had a known chance of inclusion. Nearly 20 percent of respondents were contacted via cell phone.
Questions answered by the entire sample of 603 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.
A copy of the questions and all frequencies may be found here.
- Dr. Alice Louise Kassens, Senior Analyst, IPOR
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