Consumer sentiment rose to 101.0 in February, nearly matching the expansion peak of 101.4 set in March 2018, according to the University of Michigan Surveys of Consumers.

The coronavirus was mentioned by 8% of all consumers in February when describing the reasons for their economic expectations. However, on Monday and Tuesday of this week—the last days of the February survey—20% mentioned the coronavirus due to the steep drop in equity prices as well as the CDC warnings about the potential threat of the virus, said U-M economist Richard Curtin, director of the surveys.

While too few cases were conducted to attach any statistical significance to the findings, it is nonetheless true that the spread of the virus could have a significant impact on consumer spending, he said. Importantly, the early indications suggested only a modest impact as the Sentiment Index among those who cited the coronavirus was still quite high (just over 90.0).

“If the virus spreads into U.S. communities, consumers are likely to limit their exposure to stores, restaurants, sporting events, air travel, and the like. There is no reason to anticipate that consumers will engage in such extreme measures at this time,” Curtin said. “Policies must encourage people to take normal steps of preventive hygiene but not to engage in panic reactions.

“Panic is best avoided by a strong sense of confidence in the government’s actions to control the potential spread of the virus and limit any resulting economic damage to families. The most effective fiscal and monetary policies include proposed reactions that are transparent and well understood.”

Continued Strength in Personal Finances
Consumers continued to favorably assess recent changes in their finances. Improving finances were reported by 58% of all consumers in February 2020, up from 49% a year earlier and the highest level ever recorded. Net gains in income and wealth were reported by 48%, up from 29% a year ago. When asked about financial prospects for the year ahead, 41% expected gains, between last month’s 40% and last year’s 42%. Importantly, just 8% of all households anticipated that their finances would worsen in the year ahead.

Strong Economy and Labor Market Expected
Good times financially were anticipated in the overall economy during the year ahead by 58% of all respondents, up from 48% last February, and just below the cyclical peak of 61% set in January 2015. Moreover, when asked about longer-term prospects for the national economy, half of all consumers anticipated uninterrupted growth over the next five years. The persistent economic strength is expected to keep the labor market strong in the year ahead, with three-quarters of all consumers expecting the unemployment rate to remain at least at its current low.

Consumer Sentiment Index
The Consumer Sentiment Index rose to 101.0 in the February 2020 survey, just ahead of last month’s 99.8 and significantly above last February’s 93.8. The Expectations Index rose to 92.1 in February, up from 90.5 in January and well above last February’s 84.4. Only one survey in the past three years was slightly higher, at 93.5 in May 2019. The Current Conditions Index rose slightly to 114.8 in February from 114.4 in January and remained above last year’s 108.5.

Consumer sentiment rose to 101.0 in February, nearly matching the expansion peak of 101.4 set in March 2018. The coronavirus was mentioned by 8% of all consumers in February when describing the reasons for their economic expectations. However, on Monday and Tuesday of this week, the last days of the February survey, 20% mentioned the coronavirus due to the steep drop in equity prices as well as the CDC warnings about the potential domestic threat of the virus. While too few cases were conducted to attach any statistical significance to the findings, it is nonetheless true that the domestic spread of the virus could have a significant impact on consumer spending. Importantly, the early indications suggested only a very modest impact as the Sentiment Index among consumers who mentioned the coronavirus was still quite high (just over 90.0). If the virus spreads into U.S. communities, consumers are likely to limit their exposure to stores, theaters, restaurants, sporting events, air travel, and the like. There is likely to be some advance buying and increased online shopping, but much of the discretionary spending may not occur. To be sure, there is no reason to anticipate that consumers will engage in such extreme measures at this time. It is a fine line that needs to be drawn to encourage people to take normal steps of preventive hygiene but not to engage in panic reactions. Panic is best avoided by a strong sense of confidence in the government’s responses that aim to control the potential spread of the virus and limit any resulting damage to the economic welfare of consumers. The most effective fiscal and monetary policies include proposed reactions to the virus that are transparent, well understood, and act to maintain confidence in government economic policies close to its nearly two-decade high.