The consumer sentiment index, which unlike other confidence readings had been edging back slightly, is once again showing increasing strength, at 97.6 for the preliminary March reading vs February's final at 96.3. The gain is centered in the current conditions component which rose 3.0 points to 114.5, a 17-year high and offering an early hint of strength for March consumer spending.
But it's the expectations component, up 2 tenths to 86.7, that once again reveals a deep schism in the report's sample. Expectations among Democrats are at 55.3 in a reading consistent with what the report describes as an imminent recession. In contrast, Republican expectations at 122.5 are consistent with extraordinary strength, described in the report as a new economic era. Independents are the swing factor and their expectations are right in between, at 88.3. The report notes that respondents are showing selective attention to economic news with Democrats concentrating on the unfavorable and Republicans on the favorable.
Another interesting twist in the report is a big downdraft in inflation expectations, 3 tenths lower to a year-on-year 2.4 percent for the 1-year outlook and down 3 tenths for the 5-year to 2.2 percent. These are not the results of gasoline prices which are stable and, for Federal Reserve policy makers, point to stable inflation conditions ahead.
The polarization of this report hints at possible polarization in consumer spending, that Democrats may be on a spending hold while Republicans may be on a spending spree. Unlike the strong gains for confidence readings, actual consumer spending has shown no more than moderate strength so far this year.
Recent History Of This Indicator
Unlike other confidence measures, the consumer sentiment index has edged off its post-election peak, to 95.7 in preliminary February and 96.3 in final February and compared against 98.5 in January. But forecasters, at a consensus 97.2 for preliminary March, see the index showing renewed strength. This report has been noting extreme polarization in its sample, between Democrats whose index is near record lows and Republicans whose index is near record highs. The swing factor has been independents who are closer to Republicans in their optimism.