RC Poll: Va Consumer Sentiment - Election keys flip in party sentiment, holiday spending expected to fall

The Virginia Index of Consumer Sentiment is 95.1, down three points since August 2016, the measure's record high. Sentiment is above the preliminary national November value of 91.6. A sizable drop in optimism about the future is largely offset by growth in sentiments about current household finances and economic conditions. Holiday spending is expected to drop slightly from last quarter. Post-election sentiment increased tremendously for Republicans and plummeted for Democrats relative to the pre-election poll. The short-term inflation expectation in Virginia is 2.2 percent and is lower than the national value of 2.7 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.

Virginia sentiment falls slightly, remains higher than the nation

The Virginia Index of Consumer Sentiment (VAICS) is 95.1 in November, down three points since the last quarter, but above the index average of 85.3. Figure 2 illustrates sentiment values for Virginia and the US over the past two years. Sentiment in Virginia is higher than the preliminary national November 2016 value of 91.6, which is off its post-recession high of 98.1 recorded in January 2015. The VAICS exceeds the national value for the third quarter in a row. Strong economic indicators support the sentiment values. Virginia unemployment remains low (4.2%), although it is rising due to entrants in the labor force. GDP grew 1.9% (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

US data downloaded from FRED and University of Michigan's Survey of Consumers 11/20/2016; 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 are slightly more optimistic than the nation overall which is driven by higher sentiments about the future rather than current conditions. The Virginia Index of Current Conditions (VAICC) is 98.3, down more than eight points from last quarter. Thirty-six and a half percent of respondents say their personal finances are better today than a year ago. The majority of those reporting improved household finances today cite increased incomes (62%) rather than lower prices or other causes. Comparatively, almost twenty percent of households report their household finances are worse now than a year ago, blaming lower income (27%) and higher prices (25%).

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

US data from the University of Michigan's Survey of Consumers, November 20, 2016.

The Virginia Index of Consumer Expectations (VAICE) is 93.1 in November, up slightly since last quarter. The preliminary national November 2016 measure of expectations is 82.5 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 next five years (43.7%) than believe it will contract (23.2%). Forty-six percent expect their household finances to improve in the coming year, unchanged since last quarter; while 12 percent anticipate their personal finances to decline. Improved wages and income are likely the foundation of the optimism.

Election keys shift in sentiment by party

The 2016 Presidential election was a contentious one and likely influenced consumer sentiment. Figure 4 shows the VAICS by major political party before the election (August 2016) and after the election (November 2016.) Sentiments flip-flopped. While Republicans were much less optimistic than Democrats prior to the election, their optimism increased by 22.4 points after the Donald Trump victory and retaining majorities in the House and Senate. In contrast, the Democrat VAICS was 20 points higher than the overall Virginia population prior the election, but dropped almost 37 points after the surprise Hillary Clinton loss.

Figure 4. Virginia Index of Consumer Sentiment by Major Party, Pre- and Post-election

Holiday spending is expected to fall

Consumer sentiment is a predictor for consumer expenditures and November consumer behavior and sentiment suggests household plans for holiday spending. Figure 5 shows weekly Google search volume for the term "black friday" in Virginia during the two months leading up to the Friday after Thanksgiving for 2015 and 2016. The week of highest search is equal to 100, and all other values for the search volume index are relative to that week. Currently search volume is below that in 2015, although last week saw the gap close.

Figure 5. Weekly Google Search Volume for "black friday", Virginia

Virginia consumers plan to spend 2.4% less this holiday season, relative to last quarter. Figure 6 shows diffusion indexes for each category of consumer spending and the percentage change in the diffusion indexes since last quarter. For the diffusion index, a value of zero indicates an equal share of respondents planning to spend more and less over the next few months. All values are positive, indicating positive net spending across all categories. However, the only increases relative to last quarter are in transportation services and "other goods and services," a category that includes tobacco products and personal care services. The categories typically associated with holiday gifting, including apparel, are expected to fall relative to last quarter. Weighting these categories by their relative size in a typical household consumption bundle results in a predicted fall in spending this holiday season by 2.4% relative to last quarter.

Figure 6. Expected expenditures, diffusion indexes

Regional Sentiment Strong Across the Commonwealth

Consumer sentiment for each of six regions in the Commonwealth are shown in Figure 7. 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-November 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 November 2016, Southwest Virginia, the Shenandoah Valley, and Central Virginia all show optimism beyond the norm while Northern Virginia, Tidewater, and Southside are within the bounds suggesting optimism is no different than is typical.

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 fall

The short-term inflation expectation, shown in Figure 8, rose slightly to 2.2 percent, below the national expectation of 2.7 percent. The long-term inflation expectation continued to decline coming in at 3.4 percent this quarter in the Commonwealth which is well above the 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 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. November 13-20, 2016. A total of 606 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 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. The interview is conducted with the person who is eligible and available.

Questions answered by the entire sample of 606 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.

The Roanoke College Poll is funded by Roanoke College as a public service.

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