Virginia Consumer Sentiment and Inflation Expectations Report: Holiday spending likely to be strong, sentiment falls slightly

A combination of higher incomes, low prices for certain goods, and plans to increase spending indicate a strong holiday buying season for consumers, according to the Virginia Index of Consumer Sentiment. Virginians report being better off financially today than a year ago, and many say they plan to spend at least as much money as last holiday season in some shopping categories, including recreation and apparel. As this year's busy shopping season approaches, consumer sentiment is at its strongest level since the beginning of the recession.

The Virginia Index of Consumer Sentiment is 89.2, down slightly from the records earlier in the year. The primary cause of optimism is rising income. Sentiment is lower than the preliminary national November value of 93.1. Optimism is strongest in Northern Virginia where residents continue to press forward despite federal job losses in the region. The short-term inflation expectation in Virginia remains 2.2 percent, 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 takes a familiar November dip

Though the Virginia Index of Consumer Sentiment is down slightly since the last quarter, it still is well above the index average of 83.4. Each November since the start of the index (2011), it falls relative to the previous quarter. Figure 2 illustrates sentiment values for Virginia and the United States over the past two years. Sentiment in Virginia is slightly lower than the preliminary national November 2015 value of 93.1, which is up from October but below the post-recession high of 98.1 recorded in January 2015. Anticipated higher earnings and lower prices in the coming year are driving the national value. The index is trending upward since early 2013, except for the modest November dips. Growth in sentiment is stalled, albeit at close to record levels. Virginia GDP is also stalled, reporting no growth in 2014. Despite some regional setbacks, Virginians also cite rising income and lower prices as reasons for optimism.

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

U.S. data downloaded from FRED 11/15/2015; blue line is US Consumer Sentiment (monthly); black line is a three period 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 95.4, down more than 2 points since last quarter. Thirty two percent of respondents say their personal finances are better today than a year ago, which is unchanged since August. The majority of those reporting improved household finances today cite increased incomes (67.9%), rather than lower overall prices or other causes. Comparatively, 22 percent of households report that household finances are worse now than a year ago, blaming lower income (26.4%) and higher overall prices (30.0%). 

Figure 3. Consumer Indexes November 2015, Virginia and United States

U.S. data from the University of Michigan's Survey of Consumers, November 13, 2015.

The nation as a whole is more positive about the current conditions than the Commonwealth. The University of Michigan reported a preliminary November 2015 current conditions value of 104.8. The Virginia-U.S. 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 85.2 in November, essentially unchanged since last quarter. The preliminary November 2015 national measure of expectations is 85.6 indicating that Virginians are equally 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 (38.0%) while fewer believe that it will contract (24.7%).

The gap between optimistic and pessimistic Virginians grew since last quarter. Thirty three percent expect their household finances to improve in the coming year, down 4 points since August. Fewer than 10 percent anticipate that their personal finances will decline, which is unchanged since last quarter. Improved wages and income are likely the foundations of the optimism. Consumer sentiment is at its strongest levels since the start of the recession heading into the holiday season. Anticipated higher income and low prices are likely to encourage holiday spending.

Figure 4 shows planned expenditures by Virginians over the coming year relative to last year for items commonly purchased during the holiday season. The blue, orange and grey areas show the share of respondents planning to spend more, the same or less, respectively, on those categories than last year. For each category, 80-90 percent expect to spend at least as much as last year, suggesting a strong holiday shopping season.

Figure 4. Planned expenditures on select items relative to last year, November 2015

Values are percentages; blue=more, orange=same, grey=less

Northern Virginia continues to lead the Commonwealth

In all regions, consumer sentiment is strong and higher for current conditions than for expectations of the coming year. The three index values are shown by region in Figure 5. Central Virginia, Northern Virginia and the Tidewater, the most populated regions, report strong sentiment, particularly Northern Virginia. 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 sentiment.

Figure 5. Indexes across the Commonwealth, November 2015

Comparing regional index values over time is problematic due to the small sample size within each region. Figure 6 shows the average value of the Virginia Index of Consumer Sentiment (November 2011-November 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 index values and their usual values. In November 2015, Northern Virginia and Southside demonstrated changes outside of the typical range, both in the positive direction. Southwest Virginia continues to absorb the departure announcements of several large employers in the past year. 

Figure 6. 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 hold at the lowest value since 2012

The short term inflation expectation, shown in Figure 7, remains at 2.2 percent, the lowest value since November 2012 and lower than the preliminary national expectation of 2.5 percent. The long term inflation expectation is down in the Commonwealth as well, falling to 3.7 percent, but is well above the preliminary national estimate of 2.5 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 7. 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. Nov. 9-13, 2015. A total of 603 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 603 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