Virginia Consumer Sentiment and Inflation Expectations Report: Sentiment at record levels across the Commonwealth

Sentiment up to record levels across the Commonwealth

Consumer sentiment continues to grow in the Commonwealth, hitting its highest levels since the Roanoke College Poll began measuring consumer sentiment in November 2011. The primary causes of this optimism are rising income and low prices. Although gas prices remain low, less than 28 percent of respondents report that gas prices influence their household finances a great deal. The short-term inflation expectation is unchanged since November 2014 at 2.7 percent, which is two points higher than the national January value of 2.5 percent. 

Virginia Consumer Sentiment Index Values since 2011 can be found on the Roanoke College Poll Consumer Sentiment page. 

Sentiment hits record levels in the Commonwealth

The Virginia Index of Consumer Sentiment (VAICS) is 90.4 in February, up almost 4 and a half points since November 2014, and is at the highest value recorded since the index began over three years ago. The VAICS has maintained an upward trend since early 2013, and that trend has been interrupted only once in November 2013. Sentiment in Virginia is lower than the national January 2015 value of 98.1, which is at its highest level in over a decade. Figure 1 illustrates sentiment values for Virginia and the US over time.  The Roanoke College Poll began conducting Consumer Sentiment polls in November 2011. The indexes of consumer sentiment in Virginia are shown in the following table.

Figure 1. Consumer sentiment over time, Virginia and the United States

US data downloaded from FRED 2/9/2015; blue line is US Consumer Sentiment; black line is a two year moving average; orange bars are VA Consumer Sentiment

Figure 2 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 three points since last quarter. Thirty-two percent of respondents say their personal finances are better today compared to a year ago, down slightly since November. Additionally, 60 percent of respondents believe that it is a good time to buy large durable goods, largely due to low prices. Statewide, the average price of a gallon of regular gasoline is $2.08 compared to $3.13 per gallon a year ago. Reports show that Americans increased spending by more than their gas savings, suggesting an overall increase in consumer spending, the primary component of gross domestic product. Consumer spending on all goods and services hit an 11-year high in January 2015. Almost 28 percent of respondents report that gas prices influence their household finances a great deal.

Figure 2. Consumer Indexes February 2015, Virginia and United States

The nation as a whole is more positive about the current conditions than the Commonwealth. The University of Michigan reported a January 2015 current conditions value of 109.3. 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 Governor's plan for "The New Virginia Economy" is aimed at alleviating these issues by diversifying the state economy.

The Virginia Index of Consumer Expectations (VAICE) is 87.4 in February, up almost five points since November 2014. The January 2015 national measure of expectations was 91.0 indicating that Virginians are less optimistic about the future of the economy than the nation as a whole, a reverse from recent years. More respondents believe that the overall economy will prosper over the next five years (35.4%) than believe it will contract (25.4%). Over 37 percent expect their household finances to improve in the coming year while almost 13 percent anticipate their personal finances to decline. Although the stock market has been volatile in recent months, record highs increase household wealth and low gas prices leave more money in consumers' pockets. Coupled with rising incomes the result is a positive outlook. A likely source of future optimism is the recent proposal by the Governor to increase pay for state employees and teachers.

Strong sentiment in the Commonwealth is likely due to a variety of sources. Negative reports of international unrest are balanced by positive reports of steady labor markets, rising income, and low gas prices.  

Optimism strong across regions

The three index values are shown by region in Figure 3 and over time in Figure 4. For all regions, sentiments are relatively strong and typically higher for current conditions than expectations of the coming year. Expectations corrected for the 2014 fourth quarter slump in most regions. The VAICC is lowest in Southwest Virginia at a strong reading of 87. One exception to this strength comes from the Shenandoah Valley. For the second consecutive quarter respondents in the Shenandoah Valley are considerably pessimistic about the coming year where more than 49 percent believe that business conditions will worsen throughout 2015. The source of this pessimism is unclear. An economic forecast by Chmura Analytics for Harrisonburg, an MSA in the region, suggests growth across many dimensions including wages, employment, retail sales, and building permits.

Figure 3. Indexes across the Commonwealth, February 2015

Figure 4. Sentiment indexes by region, past two years

Little change in inflation expectations

The short-term inflation expectation, shown in Figure 5, holds at 2.7 percent and just two basis points higher than the January national inflation expectation value. The long-term inflation expectation is relatively unchanged in Virginia, up one basis point since November 2014 to 4.4 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 5. 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 2-5, 2015. The sample consisted of 605 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 605 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 toplines may be found here.

Read the full poll results here.Released: February 12, 2015
Contact Name: Dr. Alice Louise Kassens
Contact Phone: (540) 375-2428 Office, (540) 816-8830 Cell
Contact Email: kassens@roanoke.edu