Virginia Consumer Sentiment and Inflation Expectations Report: Sentiment remains strong, inflation expectations lowest since 2012.
June 01, 2015
Virginians are more optimistic about the economy than the nation as a whole, and they report that they are better off financially than a year ago, according to the results of the latest Virginia Consumer Sentiment Inflation Expectations Report.
The Virginia Index of Consumer Sentiment is 89.8, statistically unchanged from the record February value and 8 points above the lifetime index average. The primary cause of consumer optimism is rising income. Sentiment is in line with the national May value of 90.7. Optimism is growing in Southwest Virginia despite recent announcements by Norfolk Southern and the U.S. Postal Service to close the mail processing facility in the Roanoke Valley. The short-term inflation expectation in Virginia fell to 2.3 percent, down 40 basis points since February 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
In May, the Virginia Index of Consumer Sentiment maintained the highest value recorded since it began nearly four years ago.
Figure 2 illustrates sentiment values for Virginia and the United States over the past two years. Sentiment in Virginia is similar to the national May 2015 value of 90.7, which fell well below predictions and is close to 8 points below the post-recession high of 98.1 recorded in January 2015. The U.S. economy contracted in the first quarter of 2015 by 0.7%, which experts believe is driving the poor second quarter sentiment numbers. The VAICS upward trend began in early 2013, except for a dip in November 2013. Despite some regional setbacks, Virginians are 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
US data downloaded from FRED 5/29/2015; blue line is US 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 95.0, up over 3 points since last quarter. Thirty-three percent of respondents say their personal finances are better today than a year ago, up slightly since February. The majority (68.3%) of those reporting improved household finances today in the past year cite increased incomes rather than lower prices (9.1%) or other causes. Comparatively, 17.5 percent of households report their household finances are worse now than a year ago, blaming lower income (32%) and higher prices (35.5%).
Figure 3. Consumer Indexes May 2015, Virginia and United States
US data from the University of Michigan's Survey of Consumers, May 29, 2015.
The nation as a whole is more positive about the current conditions than the Commonwealth. The University of Michigan reported a May 2015 current conditions value of 100.8. 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. Governor Terry McAuliffe's plan for "The New Virginia Economy" is aimed at alleviating these issues by diversifying the state economy. The gap closed considerably this month, largely due to the drop in the national current conditions value, which many attribute to poor national economic data.
The Virginia Index of Consumer Expectations (VAICE) is 87.3 in May, unchanged since February. The May 2015 national measure of expectations is 84.2 indicating that Virginians are 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 (35.1%) than believe it will contract (22.3%). Over 40 percent expect their household finances to improve in the coming year while almost 12 percent anticipate their personal finances to decline. Although the stock market has been volatile in recent months, record highs in household wealth, and low gas prices leave more money in consumers' pockets. Coupled with rising incomes, the result is a positive outlook.
Southwest Virginia is optimistic despite setbacks
In most regions, sentiments are strong and slightly 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 Tidewater, the most populated regions, report the strongest sentiments. Consumer sentiment in Southwest Virginia is positive about the current conditions, despite announcements by Norfolk Southern and the U.S. Postal Service to close some Roanoke area offices and relocate employees.
Figure 4. Indexes across the Commonwealth, May 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-May 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 May 2015, only Southwest Virginia and the Tidewater demonstrated change outside of the typical range, both of which were in the positive direction. This is significant given recent economic and policy events in the two regions. The above normal sentiments in the Tidewater region suggest that the area is looking beyond the economic fallout of sequestration, while Southwest Virginia is absorbing the departure announcements of Norfolk Southern and the USPS distribution center.
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 40 basis points from February to 2.3 percent, the lowest value since November 2012 and lower than the national expectation of 2.8 percent. The long-term inflation expectation is down 20 basis points since February to 4.2 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., May 11-15, 2015. The sample consisted of 614 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.
Virginians are asked 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.
Questions answered by the entire sample of 614 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.
For more about the Institute for Public Opinion Research, click here.
Contact Name: Dr. Alice Louise Kassens
Contact Phone: (540) 375-2428 Office, (540) 816-8830 Cell
Contact Email: kassens@roanoke.edu