RC Poll: Va. Consumer Sentiment & Inflation Expectations Report

The Virginia Index of Consumer Sentiment is 98.1, up more than eight points since May 2016, hitting a record high. Sentiment is above the national August value of 89.8, which is down slightly over the summer months. The gain in sentiment in the Commonwealth is driven by the second sizeable increase in the current conditions of household finances and purchases. The Roanoke College Poll included political party affiliation to consider political differences in consumer sentiment. Democrats report considerably more optimism than Republicans. The short-term inflation expectation in Virginia is 2.1 percent and is lower than the national value of 2.5 percent.

Figure 1. Virginia Consumer Sentiment values vs. index lifetime average

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

Sentiment hits record level

The Virginia Index of Consumer Sentiment (VAICS) is 98.1 in August, up more than eight points since the last quarter, and above the index average of 84.8. Figure 2 illustrates sentiment values for Virginia and the US over the past two years. Sentiment in Virginia is higher than the national August 2016 value of 89.8, which is off its post-recession high of 98.1 recorded in January 2015. The VAICS exceeds the national value for the second quarter in a row. Strong economic indicators support the sentiment values. Virginia unemployment remains low (4.0% in July) and the labor force increased between June and July 2016; GDP grew 1.9 percent (annualized rate), which ranks 16th amongst the states. The largest contributors to the GDP growth in Virginia are the construction and retail industries.

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

U.S. data downloaded from FRED and University of Michigan's Survey of Consumers 8/29/2016; blue line is US Consumer Sentiment (monthly); black line is a three period moving average; red 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 106.5, up more than nine points from last quarter. Forty-one percent of respondents say their personal finances are better today than a year ago, up since the second half of 2015. The majority of those reporting improved household finances today cite increased incomes (67%) rather than lower prices or other causes. Comparatively, 19 percent of households report their household finances are worse now than a year ago, blaming lower income (38.3%) and higher prices (20.8%).

Figure 3. Consumer Indexes August 2016, Virginia and United States

U.S. data from the University of Michigan's Survey of Consumers, August 29, 2016.

The nation as a whole is equally positive about the current conditions as the Commonwealth; the national August 2016 current conditions value is 106.1. The Virginia-U.S. gap concerning current conditions, which arose in 2013, is gone. The gap was potentially due to the labor market and budgetary effects of sequestration which impacted Virginia more than other states. Those effects either disappeared or were overwhelmed by other positive sentiment.

The Virginia Index of Consumer Expectations (VAICE) is 92.6 in August, up almost eight points since last quarter. The national August 2016 measure of expectations is 78.7, indicating that Virginians are considerably 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 (38.7%) than believe it will contract (23.5%). Forty-six percent expect their household finances to improve in the coming year, up since last quarter. Ten percent anticipate their personal finances to decline. Improved wages and income are likely the foundation of the optimism.

As the 2016 election nears, uncertainty will likely increase due to concerns about tax policies and other regulations that impact households and businesses. Figure 4 shows the VAICS by major political party. Republicans are much less optimistic than Democrats. Forty-seven percent of Democrats report improved household finances over the past year, while only 25 percent of their Republican peers agree. Optimism increases for both regarding 2017. Opinions about the overall economy over the next five years varies substantially by party. Over 51 percent of Democrats believe it will be a time of prosperity and growth and 29 percent of Republicans anticipate a strong economy. But 32 percent believe it will be a period of high unemployment and stagnation.

Figure 4. Virginia Index of Consumer Sentiment by Major Party

Regional Sentiment Strong Across the Commonwealth

Consumer sentiment for each of the six regions in the Commonwealth are shown in Figure 5. Comparing regional index values over time is problematic due to the small sample size within each region. Figure 5 shows the average regional value of the VAICS (November 2011-August 2016, red dot), the typical variation from that average (black line), and the current value (blue dash). This depiction provides a meaningful way to examine the current regional VAICS values to their usual values. In August 2016, all regions except Southside demonstrated change outside of the typical range, all in the positive direction. Southwest Virginia continues to absorb the departure announcements of several prominent employers in the past year, including Norfolk Southern and Advance Auto Parts.

Figure 5. Regional VAICS Mean and Current Value

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

Inflation expectations fall

The short-term inflation expectation, shown in Figure 6, fell to 2.1 percent, below the national expectation of 2.5 percent. Virginians overestimate short-term inflation by 0.87 percentage points on average (since November 2011), suggesting that inflation is likely to be below 2 percent in the coming year. The long-term inflation expectation also fell in the Commonwealth to 3.7 percent, but is well above the national estimate of 2.5 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 7-15, 2016. A total of 607 Virginia residents 18 or older were interviewed. Telephone interviews were conducted in English and Spanish. The random digit dial sample was obtained from asde Survey Sampler and includes both Virginia landline and cell phone exchanges so that all cell phone and residential landline telephone numbers, including unlisted numbers from Virginia exchanges, had a known chance of inclusion. Nearly 30 percent of respondents were contacted via cell phone. Because most surveys undersample younger males, we ask to speak to the youngest male over 18 when we call landlines. If there is no young male in the household or if he is not available, then we conduct the interview with the person who is eligible and available.

Questions answered by the entire sample of 607 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.

A copy of the questions and all toplines may be found here.

For more about the Institute for Public Opinion Research, click here. 

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