Improving economic conditions have increasingly convinced consumers that the recovery has begun, although few consumers anticipated any quick fixes to the dismal state of their own finances. Consumers were more optimistic about prospects for the national economy, inflation, and the unemployment rate, although most consumers thought their own finances would remain problematic for some time. After fearing a slide into the abyss of an economic depression in December, consumers voiced the first signs that the depression threat had ended in April, and by September concluded the recovery had begun. Nonetheless, consumer spending will remain in low gear for an extended period of time. Curtin pegged the growth of total personal consumption expenditures at just 1.6% during 2010, well below the typical rebound in spending during the first year following a recession.

The Index of Consumer Sentiment was 73.5 in the September 2009 survey, up from 65.7 in August, reversing the entire decline since last September and rising to the highest level since the start of 2008. The Index of Consumer Expectations, a closely watched component of the Index of Leading Economic Indicators, was 73.5 in September, up from 65.0 in August, and the highest level recorded since the September 2007 survey. The Current Economic Conditions Index rose to 73.4 in September, up from 66.6 in August and the highest level since last September’s 75.0.

The key factor that will hold back the usual upsurge in consumer spending is the dismal state of consumer finances. A majority of consumers judged their finances to have worsened in each of the past twelve months, with a record number of consumers reporting income declines in September. Six-in-ten families expected no income increases at all. Even lower inflation did not brighten real income prospects as just 13% expected inflation-adjusted income increases during the year ahead. Moreover, declines in home values, pension and investment accounts has made even those who have not suffered income declines more cautious spenders. The desire to decrease their debt and increase their savings remains the dominate motivation of nearly all consumers.

Twice as many consumers as three months ago reported hearing about favorable economic developments, with the primary focus on improving job prospects. The unemployment rate was expected to increase during the year ahead by 30% of all consumers in September, less than half the 69% who expected increases at the start of 2009. The data still indicate, however, that consumers expect the unemployment rate to continue rising until mid 2010.

Vehicle buying plans fell to a six month low in September following gains due to the “cash for clunkers” program. Views on home buying conditions were very favorable, but judgements about home selling conditions remained quite negative, scuttling most home buying plans. Buying plans for household durable goods improved slightly in September.