RC Poll: Va. Consumer Sentiment & Inflation Expectations Report
March 01, 2016
Relative to a year ago, Virginians report improved household finances and economic conditions. However, similar to national reports, household concerns about future economic conditions are driving a reduction in overall consumer sentiment in the state.
The Virginia Index of Consumer Sentiment is 87.4, down almost two points since November 2015 and continues to retreat from records set earlier in 2015. Consumer sentiment in Virginia is lower than the national November value of 91.7, which is also on a slow, downward slide.
The short-term inflation expectation in Virginia increased to 2.5 percent, moving above the record low in November 2015, but equal to the national value.
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 continues downward movement
The Virginia Index of Consumer Sentiment (VAICS) is 87.4 in February, down almost two points since the last quarter, but above the index average of 83.6. Figure 2 illustrates sentiment values for Virginia and the U.S. over the past two years. Sentiment in Virginia is slightly lower than the national February 2016 value of 91.7, off its post-recession high of 98.1 recorded in January 2015. Virginia unemployment remains low (4.2% in December); GDP is stalled, reporting 0.0% growth in 2014.
Figure 2. Consumer sentiment over time, Virginia and the United States
U.S. data downloaded from FRED 2/28/2016; blue line is US Consumer Sentiment (monthly); black line is a three period 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 97.3, up almost two points since last quarter. Thirty-three percent of respondents say their personal finances are better today than a year ago, statistically unchanged since the second half of 2015.
The majority of those reporting improved household finances today cite increased incomes (79.4%) rather than lower prices or other causes. Comparatively, 20 percent of households report their household finances are worse now than a year ago, blaming lower income (50.3%) and higher prices (48.6%).
Figure 3. Consumer Indexes February 2016, Virginia and United States
U.S. data from the University of Michigan's Survey of Consumers, February 26, 2016.
The nation as a whole is more positive about the current conditions than the Commonwealth; the national February 2016 current conditions value is 106.8. The Virginia-U.S. 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 Virginia Index of Consumer Expectations (VAICE) is 81.0 in February, down over four points since last quarter. The February 2016 national measure of expectations is 81.9 indicating that Virginians are similarly optimistic about the future of the economy as the nation as a whole. More respondents believe the overall economy will prosper over the next five years (32.40%) than believe it will contract (27.7%); the gap between optimistic and pessimistic Virginians shrunk since last quarter. Thirty-four percent of respondents expect their household finances to improve in the coming year, up slightly since last quarter; ten percent anticipate their personal finances to decline. Improved wages and income are likely the foundation of the optimism.
Figure 4 shows the difference between increased and decreased planned purchases by Virginians over the coming year relative to last year. The values, called diffusion indexes, are positive for all categories indicating that more respondents plan to increase buying in the coming year than less. This is particularly true for transportation, medical care, education, and recreation. According to the transportation diffusion index, almost 25 percent more respondents plan to purchase more in this category than less in the coming year. This is likely due to low gas prices. This is likely due to low gas prices which are likely driving the high recreation diffusion index since travel is now cheaper, holding all else constant.
Figure 4. Planned purchases in coming year, diffusion index, February 2016
Diffusion index is the share of "more" minus "less"; zero implies equal shares responding more and less.
According to gasbuddy.com, the average price per gallon of regular gasoline is $1.56 in Virginia (February 29, 2016). Low gas prices generate savings at the gas pump which consumers can use to buy other goods and services or save/pay off debts. Eighty-seven percent of respondents reported savings from cheaper gasoline, although 65.1% expect gas prices to rise in the next twelve months. Many respondents plan to save the short-term gains either by saving (33.8%) or paying down debts (42.9%). Thirty-two percent of Virginians plan to spend the additional dollars. Figure 5 shows the top four places these consumers plan to put their windfall gains.
Figure 5. Consumer spending of gas savings, February 2016
Current Conditions Strong Across the Commonwealth
In all regions, consumer sentiment is strong and higher for current conditions than for expectations of the coming year. The three index values are shown by region in Figure 6. Central Virginia, Northern Virginia, and the Tidewater, the most populated regions, report strong sentiment. There is evidence that firms previously reliant on government contracts are finding new business outlets after the pullback of federal dollars with sequestration which is likely helping to bolster sentiments.
Figure 6. Indexes across the Commonwealth, February 2016
Comparing regional index values over time is problematic due to the small sample size within each region. Figure 7 shows the average regional value of the VAICS (November 2011-February 2016, 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 February 2016, the Shenandoah Valley and Tidewater demonstrated change outside of the typical range, both in the positive direction. Southwest Virginia continues to absorb the departure announcements of several prominent employers in the past year. Northern Virginia, Shenandoah Valley, and the Tidewater each have current VAICS values at or above the statewide level (indicated by the darker shading.)
Figure 7. 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); shaded separation at Virginia ICS level
Inflation expectations tick upwards
The short-term inflation expectation, shown in Figure 8, ticked up to 2.5 percent, equal to the national expectation of 2.5 percent. The long-term inflation expectation is also up in the Commonwealth, rising to 4.7 percent, and is well above the national estimate of 2.5%. 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 8. 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. February 15-21, 2016. A total of 630 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 land line 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 630 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.
The Roanoke College Poll is funded by Roanoke College as a public service.
A copy of the questions and all toplines may be found here.
Released: March 1, 2016
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