Research >> Economics
University of Michigan Consumer Confidence increased to 78.6
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Consumer confidence continued to improve in the March survey due to more positive signs of expanding employment. Rising home prices also had a positive impact on consumer balance sheets and their willingness to purchase homes and vehicles. The major problem now facing consumers is meager income increases, with half of all consumers expecting price increases to exceed income gains during the year ahead. While the cuts in federal spending and the hike in payroll taxes will be a drag on economic growth, consumers now anticipate that accelerated job gains will provide an improved financial situation and enable moderate economic growth.
Rising Home Prices Expected to Continue
Recent increases in home values were reported by the largest proportion of homeowners in more than five years, and continued gains in the value of their homes were expected by more homeowners than anytime since the March 2007 survey. The pace of home purchases have directly benefited by making owners more willing to sell their current home as well as hastened the timing of buying another home before prices increase even more. Along with rising stock prices, higher home prices have indirectly helped to boost other purchases due to the increase in household wealth.
Interest Sensitive Purchases Expected to Improve
Vehicle buying attitudes remained at very positive levels throughout the past six months due to favorable perceptions of prices and interest rates on vehicle loans. The data indicate light vehicle sales will reach 15.6 million units during 2013, up from 14.4 in 2012. Despite the recent rise in gasoline prices, few consumers cited those increases in the past few months as a disruptive force when asked about their vehicle buying intentions.
The Consumer Sentiment Index was 78.6 in the March 2013 survey, up from 77.6 in February and above last March’s reading of 76.2. The Expectations Index was 70.8 in March, just ahead of the 70.2 in February and the 69.8 recorded last March. The Current Economic Conditions Index rose to 90.7 in March, just ahead of the 89.0 in February and 86.0 recorded last March.
Although confidence dipped in early March, since the middle of the month consumers have expressed improved prospects for economic growth. Two factors were responsible for the gains: consumers discounted the administration’s warning about economic catastrophe following the cuts in federal spending, and consumers have renewed their expectations that job gains will accelerate in the months ahead. This is not the first time that optimism increased following the Great Recession, but the recent gains stand a better chance to be sustained and ultimately lead to a lower unemployment rate and support consumer spending increases in the year ahead.
Posted: March 29, 2013 Friday 10:00 AM