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Virginia Consumer Sentiment Holds Steady As Expectations Rise 

Although Virginia consumers remain anxious about inflation heading into the holiday shopping season, according to this quarter’s Consumer Sentiment and Inflation Expectations report, many are optimistic that the coming years will bring better economic conditions.

The Virginia Index of Consumer Sentiment (VAICS) held steady in the final quarter of 2022, showing a net gain in the year’s second half relative to heavy losses in the first half. Consumer expectations continued to move upward, buoying the VAICS. The primary drag on sentiment remains inflation, despite its downward trend since the summer. Frustrations mount as price growth takes longer to rein in despite aggressive policy efforts. 

Consumer sentiment remained statistically unchanged, falling 0.1 points between the third and fourth quarter of 2022 to 66.2. The value is the second-lowest in series history but holds the reversal of the last quarter of the long slide since the start of the pandemic. Since the beginning of the pandemic, the index has lost 31 points.

Nationally, the November unemployment rate was 3.7%, slightly above the pre-pandemic value of 3.5%; the rate in Virginia is 2.7%, equaling its pre-pandemic value (2.7%). Although buoyed by a strong labor market, consumer sentiment is more sensitive to prices, which are significantly higher today than a year ago (7.7%, not seasonally adjusted).

Respondents from the commonwealth remain primarily concerned about the current economy as measured by the Virginia Index of Current Conditions (VA ICC). In November, the VA ICC was 55.8, down 3.5 points since the last quarter and 10 points lower than a year ago. Only a quarter of respondents report their finances being better today than a year ago despite increases in home values. Virginians see their wages buying considerably less today than a year ago, prompting their dour report of the current conditions. Less than a third of respondents believe that now is a good time to buy large, durable goods like refrigerators. Virginians are slightly less optimistic about current conditions than the nation.

Although sentiment is low in the commonwealth, there is relative optimism about the future. The Virginia Index of Consumer Expectations (VA ICE) is 72.8, up two points since last quarter and almost 20 points above the national number. About 36% of respondents believe the coming years will witness an improved economy. Thirty percent believe the coming five to 10 years will be a period of economic growth and prosperity.

Virginians anticipate rising overall prices in the near term but tapering in the long term. Individual beliefs about prices are heavily influenced by what one regularly sees (ex: fuel and food prices). Supply chain issues, high prices at the gas pump and labor shortages contribute to inflation and respondents’ concerns. Nationally, inflation rose to a seasonally adjusted annual rate of 7.5% in October 2022. Although well above the Federal Reserve Bank’s 2% target, inflation is more than a percentage point lower than the peak over the summer. The strain from higher prices is the primary driver of falling sentiment nationally and in the commonwealth.

Analysis

“Consumer sentiment held steady in the fourth quarter after turning a corner in the third quarter of 2022 and halting the freefall since the onset of the pandemic,” said Dr. Alice Louise Kassens, John S. Shannon Professor of Economics and senior analyst at the Roanoke College Institute for Policy and Opinion Research.

“Hopefully, we will soon begin to trend upwards. This and last quarter are good signs,” said Kassens. “Strong consumer confidence highlights how consumers feel about the economy, and it can also impact the future. If people are worried about the economy’s future, it can become a self-fulfilling prophecy, and we can push ourselves into a recession. The labor market remains strong. The largest drag on sentiment is inflation. Inflation appears to have rolled over and is moving in the right direction. There are signs that supply-chain issues are sorting themselves out. There is a strong market incentive for this to happen, albeit slowly, due to the size of the global economy. If this continues, prices should continue to trend downward. As gas prices continue to fall, not only will this make filling your tank cheaper, but the indirect effect of higher fuel prices on food and other shipped items will also lessen, allowing each hard-earned dollar to go father and lessen the financial pinch we are all feeling.”

 Methodology

Interviewing for The Roanoke College Poll was conducted by The Institute for Policy and Opinion Research at Roanoke College in Salem, Virginia, between Nov. 13 and Nov. 22, 2022. A total of 695 completed interviews came from random telephone calls to 436 Virginians, and 259 responses were drawn from a proprietary online panel of Virginians.

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