RC Poll: Va. Consumer Sentiment remains strong in the second half of 2015

The Virginia Index of Consumer Sentiment is 90.4, tying its February 2015 record level and 7-points above the lifetime index average despite a tepid statewide economy. The primary cause of optimism is rising income. Sentiment is in line with the preliminary national August value of 92.9. Optimism is strongest in Northern Virginia, though seemingly ignoring federal job losses in the region. The short-term inflation expectation in Virginia fell to 2.2 percent, down slightly since May and the lowest reading since November 2012.

Figure 1. Consumer Sentiment values vs. index lifetime average

Blue bars are Virginia Index of Consumer Sentiment (VAICS) values; orange line is the VAICS lifetime average. The VAICS began in November 2011.

Sentiment sustains record levels

The Virginia Index of Consumer Sentiment (VAICS) is 90.4 in August, statistically unchanged since the start of 2015, maintaining the highest value recorded since the index began almost four years ago. Figure 2 illustrates sentiment values for Virginia and the U.S. over the past two years. Sentiment in Virginia is slightly lower than the preliminary national August 2015 value of 92.9, which fell for the second month in a row and is close to six points below the post-recession high of 98.1 recorded in January 2015. An initial estimate of 2.3 percent growth in second quarter U.S. GDP is driven in part by an increase in consumer spending. The drop in national sentiment is likely due to concerns over potential Federal Reserve Bank actions and a volatile stock market. The VAICS upward trend began in early 2013, save one dip in November 2013. Growth in sentiment is stalled, albeit at record levels. Virginia GDP is also stalled, reporting zero growth in 2014. Despite some regional setbacks, Virginians remain more optimistic about the economy than the nation as a whole, primarily citing increased income.

Figure 2. Consumer sentiment over time, Virginia and the United States

U.S. data downloaded from FRED 8/23/2015; blue line is U.S.Consumer Sentiment; black line is a two year moving average; orange bars are VA Consumer Sentiment

Figure 3 illustrates the three sentiment indexes for the Commonwealth and the nation. Virginians report being better off financially today than a year ago and that business conditions have strengthened. The Virginia Index of Current Conditions (VAICC) is 97.7, up four points since last quarter. Thirty-two percent of respondents say their personal finances are better today than a year ago, down slightly since May. The majority of those reporting improved household finances today in the past year cite increased incomes (77.4%) rather than lower prices or other causes. Comparatively, 17 percent of households report their household finances are worse now than a year ago, blaming lower income (31.0%) and higher prices (27.3%).

Figure 3. Consumer Indexes August 2015, Virginia and United States

U.S. data from the University of Michigan's Survey of Consumers, August 25, 2015.

The nation as a whole is more positive about the current conditions than the Commonwealth. The University of Michigan reported a preliminary August 2015 current conditions value of 107.1. The Virginia-US gap concerning current conditions has persisted since 2013, perhaps due to the labor market and budgetary effects of sequestration which impacted Virginia more than other states. The Governor's plan for "The New Virginia Economy" is aimed at alleviating these issues by diversifying the state economy.

The Virginia Index of Consumer Expectations (VAICE) is 85.8 in August, down a point and a half since May. The preliminary August 2015 national measure of expectations is 83.8 indicating that Virginians are only slightly more optimistic about the future of the economy than the nation as a whole. More respondents believe that the overall economy will prosper over the next five years (32.1%) than believe it will contract (26.1%). Thirty-seven percent expect their household finances to improve in the coming year, down slightly since May. Less than 10 percent anticipate their personal finances to decline, also down since last quarter. Improved wages and income are likely the reason for the optimism.

Northern Virginia leads the Commonwealth, sentiment holds in Southwest Virginia

In all regions, sentiments are strong and higher for current conditions than expectations of the coming year. The three index values are shown by region in Figure 4. Central Virginia, Northern Virginia, and the Tidewater, the most populated regions, report the strongest sentiments. Southwest Virginia remains positive about the current conditions despite continued closing announcements by local employers.

Figure 4. Indexes across the Commonwealth, August 2015

Comparing regional index values over time is problematic due to the small sample size within each region. Figure 5 shows the average value of the VAICS (November 2011-August 2015, blue dot), the typical variation from that average (black line), and the current value (orange dash). This depiction provides a meaningful way to examine the current regional VAICS values to their usual values. In August 2015, Northern Virginia, Southside, and Shenandoah Valley demonstrated change outside of the typical range, all in the positive direction. Northern Virginia's strength is remarkable given the level of federal job losses in the region and falling incomes. Southwest Virginia continues to absorb the departure announcements of several large employers with an insignificant change in sentiment values.

Figure 5. Regional VAICS Mean and Current Value

Regional VAICS values on the y-axis; mean regional VAICS (blue dot), sample standard deviation of regional mean (black line), current regional VAICS (orange dash)

Inflation expectations lowest since 2012

The short-term inflation expectation, shown in Figure 6, fell slightly from May to 2.2 percent, the lowest value since November 2012 and lower than the preliminary national expectation of 2.8 percent. The long-term inflation expectation is down in the Commonwealth as well, falling to 3.9 percent, but well above the preliminary national estimate of 2.7 percent. Both short- and long-term inflation expectations are fairly stable over time. Predictable prices are crucial to long-run investment, economic growth, and job creation.

Figure 6. Short- and long-term inflation expectations past two years, Virginia

Short- and long-run price expectations are weighted means.

Methodology

Interviewing for The Roanoke College Poll was conducted by The Institute for Policy and Opinion Research at Roanoke College in Salem, Va. August 10-20, 2015. A total of 608 Virginia residents 18 or older were interviewed. Telephone interviews were conducted in English. The random digit dial sample was obtained from asde Survey Sampler and includes both Virginia land line and cell phone exchanges so that all cell phone and residential land line telephone numbers, including unlisted numbers from Virginia exchanges, had a known chance of inclusion. Nearly 30 percent of respondents were contacted via cell phone.

Questions answered by the entire sample of 608 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. Quotas were used to ensure that different regions of the Commonwealth were proportionately represented. The margin of error was not adjusted for design effects due to weighting.

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Contact Name: Dr. Alice Louise Kassens
Contact Phone: (540) 375-2428 Office, (540) 816-8830 Cell
Contact Email: kassens@roanoke.edu