Inflation expectations (short- and long-term) have risen notably in the latest Uiniversity of Michigan survey data but it is “hope” that has soared. Consumer Expectations spiked most in over 3 years to 85.2 in November to 18 month highs following the election of Donald Trump as US president.
While current conditions remain well off the summer highs (107.3 vserus 110.8 in June), it is the surge in “hope” that is most notable.
Furthermore Business Expectations soared from 80 to 92 post-election.
So why the surge in optimism? One word: Trump.
According to the report, the initial reaction of consumers to Trump’s victory was to express greater optimism about their personal finances as well as improved prospects for the national economy. The post-election gain in the Sentiment Index was +8.2 points above the November pre-election reading, pushing the Index +6.6 points higher for the entire month above the October reading.
The post-election boost in optimism was widespread, with gains recorded among all income and age subgroups and across all regions of the country. The upsurge in favorable economic prospects is not surprising given Trump’s populist policy views, and it was perhaps exaggerated by what most considered a surprising victory as well as by a widespread sense of relief that the election had finally ended. To be sure, no surge in economic expectations can long be sustained without actual improvements in economic conditions. Presidential honeymoons represent a period in which the promise of gains holds sway over actual economic conditions.
UMich however warns that “Presidential honeymoons can quickly end if they are unaccompanied by prospects that economic conditions will actually improve in the future.”
As UMich concludes, “President-elect Trump appears to appreciate the importance of his first hundred days; the key issue is whether his economic policies will resonate with the nation’s consumers. The data indicate that consumer spending will advance by 2.5% in 2017.“
For now, however, all is well: after all Obama has 2 more months left under his tenure. After that all bets are off.