Virginia Consumer Sentiment and Inflation Expectations Report - August 2019

The Virginia Index of Consumer Sentiment fell three points to 91.5, its lowest level since November 2017 and half of a point below its 5-year average. The reduction is largely due to a continued drop in consumer expectations for the coming year. However, consumers continue to spend, reflecting the strength in current conditions, and report plans to purchase expensive durable items before anticipated price increases from added tariffs.

Figure 1. Virginia Consumer Sentiment, past two years (black=VAICS, blue=5-year historical VAICS average)

Consumer sentiment backs away from growth trend

The Virginia Index of Consumer Sentiment (VAICS) continued into a 6-month downward trend, falling seven points since February. The national value is 89.8, down over ten points since May. In May, national respondents cited increased confidence in government inflation and unemployment policies, but have since expressed concerns about the future of the economy. Figure 2 shows the current index values for Virginia and the US: current, expectations, and overall sentiment, respectively (left to right.) Both are in decline. Personal spending is strong but political volatility and uncertainty about international policy is leading consumers to consider large purchase now.

Figure 2. August 2019 Virginia and US Indexes of Current Conditions, Consumer Expectations, and Consumer Sentiment (left to right)

Figure 3 shows the five-year historical values for the VAICS and its two sub-indexes, the Index of Current Conditions (VAICC) and the Index of Consumer Expectations (VAICE). All values declined since last quarter, the VAICE particularly so. The reduction stems primarily from a moderation in optimism about the overall economy. Over 35% anticipate the next five years to be a period of strong economic growth and prosperity, a three-point reduction since May, although 41% believe their household finances will improve over the next year, which is statistically unchanged over the last six months. Over 58% believe that now is a good time to buy large durable items due to both rising income and concerns that prices will rise with tariffs.

Figure 3. Five-year historical values for three Virginia indexes

Party divide continues to grow

Figure 4 shows the Virginia Index of Consumer Sentiment by party affiliation. Prior to the 2016 Presidential election, Democrats were considerably more optimistic about the economy than their right-leaning peers. The party gap closed heading into the election, and flipped afterward, hitting a high in the third quarter of 2018 of almost 49 points. After the November 2018 election, Democrat sentiment jumped eight points while Republican’s fell by five points, closing the gap significantly. 

August was considerably less tumultuous, politically-speaking, in the Commonwealth than earlier in the year. Those who affiliate with the Democratic party maintained their sentiment since May while those who affiliate with the Republican party increased their sentiment by almost three points. The party-gap grew to 41.1 points. The drop in the overall sentiment value is driven by those who identify as Independents.   

Figure 4. Virginia Index of Consumer Sentiment, Democrat and Republican

Note: Lines = Virginia Index of Consumer Sentiment (blue=D, red=R), Dashed Lines = VAICS Historical Average

Inflation expectations rise dramatically

Short-term inflation expectations retreated from the large increase last quarter, coming in at 3.1 percent. Long-term expectations also fell slightly to 3.8% as shown in Figure 5. The measures indicate direction of overall price growth anticipated by Virginians over the next year and next 5-10 years, respectively. The short-term price expectation is above the historical average, but the long-term rate is close to typical, suggesting an abbreviated international policy effect. Price stability is important for investment and retirement planning.

Figure 5.  Short and long-term inflation expectations

Methodology

Interviewing for The Virginia Consumer Sentiment and Inflation Expectations Report was conducted by The Institute for Policy and Opinion Research at Roanoke College in Salem, Va. between August 11 and August 19, 2019. A total of 604 Virginians were interviewed. Telephone interviews were conducted in English.

The landline sample consisted of random-digit numbers generated in proportion to the Virginia population so that all residential telephone numbers, including unlisted numbers, had a known chance of inclusion. Cell phone samples were purchased from Marketing Systems Group and Call Delivery Systems. Cell phones comprised 38 percent of the completed interviews.

Questions answered by the entire sample of 604 respondents are subject to a sampling error of plus or minus approximately 4.2 percent 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 4.2 percentage points above or below the figure that would be obtained by interviewing all Virginians who have a home telephone or a cell phone and are potential voters in 2019. Where the results of subgroups are reported, the sampling error is higher.

Quotas were used to ensure that different regions of the Commonwealth were proportionately represented. The data were statistically weighted for gender, race, and age. Weighting was done to match Virginia census data. 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 Virginia Consumer Sentiment and Inflation Expectation report is sponsored by Atlantic Union Bank.

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
Contact Email: kassens@roanoke.edu

The Virginia Consumer Sentiment and Inflation Expectations Report and the Virginia Real Estate Report are sponsored by Atlantic Union Bank.