The Wealth Effect Hits Consumer Sentiment

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With the wealth effect primarily reaching those with high incomes and asset holdings, consumer sentiment is struggling to sustain a significant move higher. According to Thomson Reuters/University of Michigan’s preliminary reading, consumer sentiment fell to 80.4 in January compared to a reading of 82.5 in December.

The results were weaker than estimated. On average, economists expected the index to reach 83.5 this month. In 2013, consumer sentiment has ranged from a low of 73.2 in October to a high of 85.1 in July. The report comes just one week after the Labor Department said wage growth remained stagnant last year, and the number of people in the labor force continues to decline.

“Upper-income households benefited from continued strong gains in income as well as increases in stock and home values,” survey director Richard Curtin said in a statement. “Low- and middle-income households were mainly concerned about lackluster growth in employment and income, and anticipated less improvement in long-term prospects for the economy.”

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 95.2 from 98.6, missing estimates calling for 98.5. Consumer expectations also declined to 70.9 in January from 72.1 in December. Economists expected a reading of 74.2.

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