Consumers voiced in the first half of 2015 the largest and most sustained increase in economic optimism since 2004. Just as important, that same record was set by households in the top third of the income distribution as well as by the middle third and those in the bottom third of the income distribution. Moreover, the recent surveys recorded those same records when consumers were asked to evaluate prospects for the national economy, their personal finances, and buying conditions. Consumer spending will remain the driving force of economic growth in 2015. Overall, the data indicate growth in consumer spending of 3.0% in 2015.

Strong Economic Growth Expected
The economic slowdown has ended according to consumers. The fewest consumers thought the economy had worsened in the June 2015 survey than anytime since August of 2000. Consumers reported hearing of fewer recent job losses in June, and the majority of consumers anticipated good times in the economy as a whole during the year ahead. When averaged over the first half of 2015, consumers were more likely to expect good times in the economy than in the first half of any other year since 2000.

Personal Finances Improve
During the first six months of 2015, consumers more favorably assessed their current finances as well as their future financial prospects than in the first half of any other year since 2007. These very favorable expectations were driven by remarkably low income expectations: across all households during the first half of 2015, an income increase of 1.5% was expected, down from 2.5% in the first half of 2007. A lower prevailing inflation rate, however, made real income gains higher in the first half of 2015 than anytime since the first half of 2007.

The Consumer Sentiment Index was 96.1 in the June 2015 survey, up from 90.7 in May and significantly above last June’s 82.5. Other than January’s 98.1, the June reading is the highest since 2007. The Current Conditions Index was 108.9 in June, up from 100.8 in May and last June’s 96.6. The Expectations Index rose to 87.8 in the June 2015 survey, up from 84.2 in the May and substantially above last June’s 73.5.

The remarkably favorable economic assessments documented in the recent surveys were due to two factors. An improving economy was the most important component. But the gains were so outsized that they probably reflected the acceptance of a new lower comparison standard that was based on diminished expectations for long-term economic prospects. Parsing just how much has been due to an improving economy and how much to an acceptance of diminished economic standards will be revealed by their subsequent consumption behavior. Needless to say, the answer to this question has critical implications for appropriate economic policies.