RC Poll: Va Consumer Sentiment reverses six month slide, moves up two points

Virginia consumers say they are optimistic about the economy, citing high expectations for the future of their household finances and overall economic situations, according to the latest findings from the Virginia Consumer Sentiment and Inflation Expectations Report.

The Virginia Index of Consumer Sentiment is 89.7, up more than two points since February 2016, reversing its six month slide. Sentiment is lower than the preliminary national May value of 95.8, which is also up from earlier in the year. The short-term inflation expectation in Virginia is unchanged at 2.5 percent and equal to the preliminary national value.

Figure 1. 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 moves up, reversing six-month slide

The Virginia Index of Consumer Sentiment (VAICS) is 89.7 in May, up over two points since the last quarter, and above the index average of 84.0. Figure 2 illustrates sentiment values for Virginia and the US over the past two years. Sentiment in Virginia is lower than the national preliminary May 2016 value of 95.8, off its post-recession high of 98.1 recorded in January 2015. Virginia unemployment remains low (3.9% in April) although the labor force is also contracting. Virginia GDP grew 1.2 percent (annualized rate), which ranks 39th amongst the states.

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

US data downloaded from FRED 5/21/2016; 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 97.3, unchanged from 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 (62.7%) rather than lower prices or other causes. Comparatively, 22 percent of households report their finances are worse now than a year ago, blaming lower income (28.9%) and higher prices (32.9%).

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

U.S. data from the University of Michigan's Survey of Consumers, May 13, 2016.

The nation as a whole is more positive about the current conditions than the Commonwealth; the preliminary national May 2016 current conditions value is 108.6. 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 Virginia Index of Consumer Expectations (VAICE) is 84.8 in May, up over four points since last quarter and the driving force behind the rebound in the overall index. The preliminary May 2016 national measure of expectations is 87.5 indicating that Virginians are less optimistic about the future of the economy as the nation as a whole. More respondents believe that the overall economy will prosper over the next five years (30.7%) than believe it will contract (23.4%). Thirty-nine percent expect their household finances to improve in the coming year, up since last quarter, while 12 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 but two categories. The positive diffusion indexes indicate that more respondents plan to increase buying in the coming year. This is particularly true for transportation, medical care, education, and recreation. More respondents also plan to buy less goods and services (includes tobacco products, haircuts, and other personal services) and food and beverages. According to the transportation diffusion index, almost 23 percent more respondents plan to purchase more in this category than less in the coming year. 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, May 2016

Diffusion index is the share of "more" minus "less"; zero implies equal shares responding more and less.

According to GassBuddy.com, the average price per gallon of regular gasoline is $2.11 in Virginia (May 22, 2016), up $0.50 since February. Low gas prices generate savings at the gas pump which consumers can use to buy other goods and services or save/pay off debts. Seventy-seven percent of respondents reported savings from cheaper gasoline, down10 percentage points since February. Seventy-eight percent expect gas prices to rise in the next 12 months, up 13 points since February. This suggests that Virginians are adjusting their expectations as prices rise. Many respondents plan to use the short-term gains by either saving (34.0%) or paying down debts (42.5%). Twenty-nine percent of Virginians plan to spend the additional dollars. Figure 5 shows the top four places where these consumers plan to put their windfall gains.

Figure 5. Consumer spending of gas savings, May 2016

Regional Sentiment Strong across the Commonwealth

Consumer sentiment for each of six regions in the Commonwealth are shown in Figure 6. Central Virginia, Northern Virginia, and the Tidewater, the most populated regions, report strong sentiment as does the Southside. 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, May 2016

Note: Grey shading darkens with strength of the regional sentiment value.

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-May 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 May 2016, the Shenandoah Valley and Southside 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, including Norfolk Southern and Advance Auto Parts. Northern Virginia and the Tidewater each have current VAICS values at or above the statewide level.

Figure 7. 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 tick upwards

The short-term inflation expectation, shown in Figure 8, held at 2.5 percent, equal to the national expectation of 2.5 percent. The long-term inflation expectation is also unchanged in the Commonwealth at 4.7 percent, and is well above the national estimate of 2.6 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 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. May 9-17, 2016. A total of 601 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 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.

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