Research >> Economics
University of Michigan Consumer Confidence down in August to 91.9
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Consumer confidence declined in late August mainly due to the recent volatility in stock prices. The overall decline was quite small, occurring very late in the month, as well as being offset by still quite favorable job and income prospects. To be sure, when data become available in mid September, much more will be known about consumers’ reactions to the volatile stock market. Overall, the data suggest that real personal consumption expenditures will expand by a still healthy 2.9% in 2015, with the pace of growth rising to 3.0% in 2016. Needless to say, consumer sentiment must be carefully monitored in the months ahead.
Stock Ownership Widespread
Changing stock prices is a direct concern to consumers. Among all households, 61% own stock, and among those in the upper half of the income distribution, 85% own stock, which rises to 91% among the top fifth of the income distribution. Although the dollar value of stock holdings is highly concentrated, a broad array of consumers have a stake in the market. The effect of changing stock prices on spending is not as widespread since most have stock in retirement accounts. Moreover, its impact on spending is much less than housing wealth.
Personal Finances Improve
Consumers evaluated their personal finances as positively as any time in the past eight years. An improved financial situation was reported by 45% of all households in August, only marginally below the recent peak of 47% recorded in April. More than one-third of all households reported recent income gains, and half anticipated higher incomes during the year ahead. News heard about job growth remained quite high and three-in-four consumers anticipated that the unemployment rate would hold constant or decline in the year ahead.
The Consumer Sentiment Index was 91.9 in the August 2015 survey, down from 93.1 in July, but significantly above last August’s 82.5. The Current Conditions Index was 105.1 in August, down from 107.2 in July and above last August’s 99.8. The Expectations Index posted a much smaller loss, falling only slightly to 83.4 in August from July’s 84.1 and remaining significantly higher than the 71.3 recorded last August.
How will consumers react to volatile stock prices? The Black Mondays of October 17, 1987 and August 24, 2015 represent two episodes when the stock market declined mainly due to reasons other than the domestic economy. Prior to each stock decline, the Sentiment Index was very positive, but immediately following, it fell by about 10%. Consumers quickly dismissed the 1987 episode since it didn’t involve their jobs or incomes, and today’s consumers hold similar favorable views about their job and income prospects. While this preliminary reading must be confirmed by additional data, there is every reason to expect continued growth.
Posted: August 28, 2015 Friday 10:00 AM