Research >> Economics
University of Michigan Consumer Confidence Edges Lower
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Consumer confidence has improved substantially from the lows recorded in late 2008, and consumers expect the economy to continue to recover during the year ahead. The ongoing economic recovery will be unlike any other due to changes in consumer spending preferences. Typical recoveries are driven by resurgent spending on homes, vehicles, and other large purchases. In the past, these spending preferences were unleashed as soon as the recovery began. Consumers now put debt reduction and increased savings at the top of their agendas rather than the quick resumption of postponed spending plans. These changed preferences are due to the extent of the financial reversals suffered by consumers, which spanned every aspect of their economic lives, as well as the widespread recognition among consumers that it will take years for them to fully recover. Estimated growth of total personal consumption expenditures at just 1.6% during 2010, well below the typical rebound in consumer spending during the first year following a recession.
The Index of Consumer Sentiment was 70.6 in the October 2009 survey, just below the 73.5 in September, but substantially above the 57.6 recorded last October. The Index of Consumer Expectations, a closely watched component of the Index of Leading Economic Indicators, was 68.6 in October, down from 73.5 in September but significantly above the 57.0 recorded last October. The Current Economic Conditions Index rose to 73.7 in October, just ahead of the 73.4 in September and well above the 58.4 recorded last October.
Consumers think that the economic policies of the Obama administration and the Federal Reserve have effectively ended the steep economic slide. While most consumers think the unemployment rate is close to its peak, very few think that it will decline anytime soon. Moreover, although consumers think the policies already enacted will benefit the near term economic outlook, they are not more optimistic about longer term prospects—31% expected a favorable long term outlook in October 2009, barely above the 28% recorded in October 2008.
The majority of consumers reported that their finances had worsened in October for the thirteenth consecutive month—the longest and deepest decline in the sixty-year history of the surveys. The fewest consumers ever recorded cited income gains in the October survey—just 12%, about one-third the level that reported income declines (32%). Moreover, for the first time in sixty years, the majority of families expected their incomes to remain unchanged or to decline during the year ahead—and that record was repeated in every monthly survey conducted during 2009.
Consumers reported some improvement in the availability of mortgage credit in October when asked about home buying conditions, but still held very negative views of selling their own home due to price declines. Vehicle buying plans declined as consumers viewed buying conditions less favorably due to fewer available discounts following the expiration of the cash-for-clunkers program. Higher vehicle sales in the 3rd quarter had a big but temporary impact on GDP, with higher vehicle output accounting for nearly half of the 3rd quarter GDP growth.
Posted: October 30, 2009 Friday 10:00 AM