Consumer sentiment roughly unchanged from early January

Consumer sentiment remained largely unchanged in the last half of January from earlier in the month. Indeed, the overall level of the Sentiment Index has shown only relatively small variations since the pandemic started, averaging 81.5 in 2020, marginally above January's 79.0. Needless to say, Sentiment levels were well below the average of 97.0 from 2017 to 2019. Importantly, the level of key confidence indicators remained well above prior cyclical lows despite the sudden historic collapse in economic activity. The overall stability of consumer confidence has benefitted from wearing masks and social distancing, the quick substitution of home for office work, and the prompt distribution of generous federal benefits. These factors helped to absorb the pandemic's negative impact on the economy as well as on personal finances. Although the nation is still being ravished by the pandemic, and the nation's cooperative reactions have been far from perfect, consumers have helped to dissipate the potential for further harm. Despite continuing job and income disparities, as precautionary motives begin to ease, accumulated savings will spark a significant gain in spending in late 2021.

In contrast to the reduced levels but relatively stable trends in consumers' economic expectations, partisan views have remained quite volatile. In the past three months, the Index of Consumer Expectations, the primary gauge for the future performance of the economy, has jumped among Democrats to 91.8 in January from 68.6 in October, and among Republicans it has plunged to 51.4 in January from 96.4 in October (see the chart). This reverses the shift which occurred when Trump was elected and maintained throughout his term in office. The data also indicate that the weighted average across Democrats and Republicans (74.2) has closely followed trends for Independents as well as the all-household average. The sharp partisan differences have been effectively neutralized with respect to economic expectations, although still exerting a dominant force shaping public discussions.