Consumer sentiment in the U.S. deteriorated in late December but remained above its November level, the University of Michigan’s survey of consumers showed Wednesday.
The biggest shift from the mid-month reading came in the current conditions gauge, reflecting the surge in infections following Thanksgiving weekend and the return of lockdowns.
The second and final December reading of the consumer sentiment index fell to 80.7 from the preliminary reading of 81.4 earlier in the month. In November, the index had fallen to 76.7.
Economists had expected a higher reading of 81.
Much of the gain compared with the prior month is due to Democrats becoming more hopeful, a shift that has outpaced Republicans turning negative.
“The improvement was due to a large and rapid partisan shift, with Democrats becoming much more positive and Republicans much more negative,” the survey’s chief economist, Richard Curtin, said.
Curtin described the partisan shift:
The largest change was in long term business prospects, as twice as many Democrats as three months ago expected a continuous expansion over the next five years (54% up from 27%), while that same favorable expectation was nearly cut in half among Republicans (32% down from 60%).
The measure of current conditions rose to 90 in the final December reading from 87 last month. This was a move down from the mid-month level of 91.8 and is 18.7 percent lower than the year ago level.
The index that measures expectations for the next six months rose to 74.6 from 70.5 in November and remained largely unchanged from the mid-month level.
The pandemic has opened up a gap between how consumers see their own current personal financial situation and their assessments of the overall economy, according to Curtin.
Curtin explained:
Trends in how consumers evaluate their own finances and how they assess changes in the national economy have followed a close association over the past half century. Since the start of the pandemic, however, a huge divide has grown across households in how they assess their own personal finances: the finances of those that continue to be employed and working at home have remained positive while those who have lost jobs and incomes have been quite negative. Growing inequalities have also been due to rising home and stock prices. In contrast, nearly everyone has reported negative assessments of current conditions in the national economy.
This is evidence for what has been described as the “k-shaped” recovery, with some consumers doing much better than others. It might also explain why consumer spending has been more resilient than expected.
Curtin says the data suggests the economic growth will be shaky for some time.
“While the rollout of the vaccine has been greeted as the beginning of the end, the end of the pandemic is still on the distant horizon in terms of a return to normalcy for consumer behavior, even among the most favored households. Precautionary motives will continue to shape both economic and personal behavior,” Curtin said.