Research >> Economics
University of Michigan Consumer Confidence Rose to 78.3
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Consumer confidence improved substantially in the September survey due to more favorable prospects for the national economy. Importantly, consumers expected the economy to create more jobs in the year ahead. The overall rise in confidence was aided by higher stock prices as well as rising home values. The majority of consumers, however, still anticipate very small wage gains, and expect somewhat larger price increases during the year ahead, largely due to rising food prices. This meant that half of all households anticipate declining living standards as their incomes fail to keep pace with inflation.
Positive Home Buying Plans
Low mortgage rates have reinvigorated home buying. Just as importantly, people’s reluctance to sell their current home to buy another home has also receded. Virtually every home buyer cited low mortgage rates and low prices. While those same low prices were seen as a disadvantage for home sellers, that disadvantage has shrunk to its lowest level in the past five years. While the indications for home sales are positive, the data indicate that the recovery in the housing market will be slow and halting.
Positive Economic Growth Expected
Twice as many consumers now expect the economy to continue to expand as anticipate renewed economic declines. In the September survey, more consumers spontaneously reported hearing news about job gains, and expected continued job gains during the year ahead. When specifically asked about prospective changes in the unemployment rate, the highest number of consumers in the past six months expected declines in unemployment.
The Consumer Sentiment Index was 78.3 in September 2012, up from 74.3 in August, and well above last August’s 59.5. The outsized year-to-year gain of 31.6% reflects a rebound from the disastrous lows during the debt ceiling debate.
More important were the monthly gains, especially the gain in the Expectations Index, which rose to 73.5 in September from 65.1 in August. In contrast, the Current Conditions Index slipped to 85.7 in September from 88.7 in August, but remained above the 82.7 recorded in July 2012.
The September improvement in confidence was due to more favorable prospects for the economy and for jobs during the year ahead. In addition, consumers reported some small gains in their financial situation. The improvement was due to a reduction in their debt levels and an increase in the value of their assets, primarily because of rising stock prices and home values. Nonetheless, consumers anticipate a rocky economic road ahead. Small wage increases, rising food prices, slowly declining joblessness, higher taxes, and an overall economy that will not expand continuously but suffer some setbacks over the next several years.
Posted: September 28, 2012 Friday 10:00 AM