RC Poll: Va Consumer Sentiment & Inflation Expectations
Salem, VA - Virginians weighed in on their opinions of the economy for the first time this year. The Roanoke College Poll interviewed 601 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- and long-term. Indexes of current conditions, consumer expectations, consumer sentiment, and inflation expectations were constructed using methods similar to the popular national measures from the University of Michigan. This is the eighth survey from IPOR on Virginia consumer sentiment and the seventh for inflation expectations. As of 2013, both measures are released quarterly.
Sentiment rebounds across the Commonwealth
The Virginia Index of Consumer Sentiment (VAICS) rose to 83.0 in February, up 6.5-points since November 2013, making up a majority of the loss from August 2013. The increase returns the index to its upward trend held through the middle of 2013, and is 8-points higher than a year ago. Sentiment in Virginia is slightly above the preliminary national consumer sentiment value for February 2014. Figure 1 illustrates sentiment values for Virginia and US over time.
Figure 1. Consumer sentiment over time, Virginia and the United States
US data downloaded from FRED 2/17/2014; blue line is US Consumer Sentiment; black line is a two year moving average; orange bars are VA Consumer Sentiment
Sentiment about the future economy and household finances increased by nearly 8-points since November, returning to its upward trend. The Virginia Index of Consumer Expectations (VAICE) is 82.1 in February, up from 74.3 in November 2013. The preliminary 2014 national measure of expectations was 73.0 indicating that Virginians are considerably more optimistic about the future of the economy than the nation as a whole. The share of respondents who believe that the next five years will be a period of high unemployment and recession is down 6-points since November. Differences in these attitudes continue to exist across groups. This is particularly true of Republicans (58 percent) and low income households (51 percent). Democrats (43 percent) and blacks (39 percent) are more likely to believe the coming years will be a time of economic prosperity than contraction.
Virginians report being better off financially today than a year ago and that business conditions have strengthened. The Virginia Index of Current Conditions (VAICC) rose by almost 5 points since November to 84.3. Of those reporting that they are better off financially today compared to a year ago, 79-percent attribute the improvement to higher income, while only 2.7-percent to lower prices.
The nation as a whole is considerably more positive on the current conditions. The University of Michigan reported a preliminary 2014 current conditions value of 94.0, an increase of almost 7-points since November, but down 2-points since January. The Virginia-US gap concerning current conditions has persisted since 2013. Thirty-seven percent of Virginians believe that business conditions are worse today than a year ago, a 10 point reduction since November; 28 percent report business conditions have improved. This is particularly true amongst Republicans (58 percent), Independents (42 percent), and whites (44 percent). A greater share of high income households believe business conditions have improved (39 percent) than worsened (32 percent). Figure 2 shows the three indexes for both Virginia and the United States.
Figure 2. Consumer Indexes February 2014, Virginia and United States
US data are preliminary February 2014 values, released 2/14/2014.
Improved sentiment in the Commonwealth and the nation could stem from a variety of sources. The second half of 2013 was plagued by a national government shutdown, flat labor market, uncertainty about potential increases in the minimum wage and the impact of health care reform, and a volatile stock market. The Commonwealth in particular witnessed a vitriolic gubernatorial race in early November. Although uncertainty continues with respect to changes in the minimum wage and the timing and impact of health care reform, the Virginia labor market has been stable and continues to be in better condition than the nation as a whole. Additionally, political infighting in the Commonwealth has abated in early 2014, which could be a contributing factor to the improved sentiments.
Most regions return to trend, Shenandoah remains flat
Consumer sentiment in all regions, save the Tidewater and Shenandoah, rebounded from November 2013 losses, mirroring the Commonwealth as a whole. Regional index values are shown in Figure 3. Respondents are more optimistic about current conditions compared to the future of the economy in four of the six regions. The differences are significant in the Shenandoah Valley where the current conditions (VAICC) measure is almost 16-points higher than that for the future (VAICE). In comparison, the VAICC is 10.8-points lower than the VAICE in the Tidewater where views on the current conditions continued to fall since the fourth quarter of 2013. The Tidewater is the only region with a reduction in the VAICC between November 2013 and February 2014.
Figure 3. Indexes across the Commonwealth, February 2014
Figure 4 shows regional sentiment indexes over time. Sentiments are generally low and stagnant in the Shenandoah Valley, and have been so since the August 2013 report; expectations about the future in the region have been on a downward trend since November 2012. The Shenandoah Valley's largest industry outside of government is manufacturing. Although the regional unemployment rate is equal to the state rate (4.8% December 2013), a greater share of the regional insured unemployed are in construction and manufacturing. The industries with the most hires (4th quarter, 2012) are retail and accommodation and food service, both with low average weekly earnings of $470 and $293 per week, respectively (2nd quarter, 2013), and high turn-over. The bleak economy in the region likely explains the stagnant sentiment values.
The VAICC has been falling in the Tidewater since August 2013. Regional production increased by less than 1-percent in 2013, well below that of the Commonwealth and the nation; the sequester cost the area an estimated $460 million and 4,000 jobs in 2013, adding to the pain of a jobless recovery. According to the Regional Studies Institute at Old Dominion University, defense spending in the Hampton Roads fell to 44.7-percent of regional real gross domestic product in 2013 from 48.5-percent in 2011. The decline is not due to rapid growth in private spending, rather a reduction in defense spending. These economic pressures likely contribute to the falling VAICC in the region.
Figure 4. Sentiment indexes by region, over time
Prices remain stable in the Commonwealth
The short-term inflation expectation, shown in Figure 5, is up almost four basis points, and is one basis point below the preliminary February 2014 value. The uptick in the Commonwealth follows two quarters of modest disinflation. The long-term inflation expectation is down from November 2013 to 4.6-percent and is the lowest value recorded since May 2013. The value is well above the November 2012 low of 3.6-percent. Both short- and long-term inflation expectations are fairly stable. Predictable prices are crucial to long-run economic growth and job creation.
Figure 5. Short- and long-inflation expectations over time, Virginia
Short- and long-run price expectations are weighted means.
Interviewing for The Roanoke College Poll was conducted by The Institute for Policy and Opinion Research at Roanoke College in Salem, Va., February 2-5, 2014. The sample consisted of 601 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 30 percent of respondents were contacted via cell phone.
Questions answered by the entire sample of 601 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 Kassens
- (540) 375-2428 Office; (540) 816-8830