Consumer Sentiment Struggles to Gain Momentum

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With the wealth effect primarily reaching those with high incomes and asset holdings, consumer sentiment is struggling to sustain momentum. According to Thomson Reuters/University of Michigan’s preliminary reading, consumer sentiment fell to 81.2 in January compared to a reading of 82.5 in December.

On the positive, the results were mostly in-line with estimates. On average, economists expected the index to reach 81.0 this month. In 2013, consumer sentiment ranged from a low of 73.2 in October to a high of 85.1 in July. Earlier this month the Labor Department said wage growth remained stagnant last year, and the number of people in the labor force continued to decline. In fact, the savings rate in the United States is now at its lowest level since 2008.

“Prospects for either consumers’ own personal finances or for the economy as a whole have remained more resistant to improvement, especially longer term prospects,” survey director Richard Curtin wrote in a statement. “This has prevented recent economic gains from building the type of positive upward momentum that has sparked and sustained increases in consumer optimism and confidence.”

During the last recession, the index averaged slightly above 64. In the five years before the financial crisis, it averaged almost 90. Consumer sentiment is one of the most popular measures of how Americans rate financial conditions and attitudes about the economy. The University of Michigan’s Consumer Survey Center questions 500 households each month for the index.

Current economic conditions, which measure whether Americans think it is a good time to make large investments, fell to 96.8 in January from 98.6 in December, topping estimates calling for 95.5. Consumer expectations also declined to 71.2 in January from 72.1 in December. Economists expected a reading of 71.5. The one-year inflation expectation was 3.1 percent.

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