After a couple of months of animal-spirit-inducing exuberance in soft-survey-hope-data, UMich consumer sentiment printed a disappointing 95.7 in Feb (versus 98.0 exp and down from 98.5 in Jan). The biggest driver was a notable drop in 'hope' as Democrats Expectations plunged near record lows.
The Democrat’s Expectations Index is close to its historic low (indicating recession) and the Republican’s Expectations Index is near its historic high (indicating expansion). While currently distorted by partisanship, the best bet is that the gap will narrow to match a more moderate pace of growth. Nonetheless, it has been long known that negative rather than positive expectations are more influential in determining spending, so forecasts of consumer expenditures must take into account a higher likelihood of asymmetric downside risks.
Inflation expectations were mixed - rising in the short-term and dropping in the longer-term - which matches the markets inflation breakeven collapse...
Finally we note University of Michigan's comments that when asked to describe any recent news that they had heard about the economy, 30% spontaneously mentioned some favorable aspect of Trump’s policies, and 29% unfavorably referred to Trump’s economic policies.
Thus a total of nearly six-in-ten consumers made a positive or negative mention of government policies. In the long history of the surveys, this total had never reached even half that amount, except for five surveys in 2013 and 2014 that were solely dominated by negative references to the debt and fiscal cliff crises.
Moreover, never before have these spontaneous references to economic policies had such a large impact on the Sentiment Index: a difference of 37 Index points between those that reported news of favorable and unfavorable policies. When the Sentiment Index was calculated by party affiliation, a nearly identical difference of 40 Index points was found between Democrats and Republicans. These differences are troublesome.
It seems the 'soft' data surge is starting to fade...