Research >> Economics
U Mich - Lower Prices Provide Consumers Some Relief
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Consumers reported that lower prices provided some needed relief, but continued job losses as well as income declines have kept consumers pessimistic about their future economic prospects. The most significant change recorded in the December survey was the record plunge in inflation expectations. Not only did a record number of consumers report that retailers were currently offering deeply discounted prices, but consumers expected the overall rate of inflation to fall significantly in the future. One-in-four consumers expected outright declines in the overall price level, more than any time since the 1950's. Although most consumers view the recent price declines as due to the recessionary downturn in spending, even longer term inflation expectations have decreased. While most consumers expect a rebound in prices when the economy recovers, they now anticipate a somewhat lower overall inflation rate to prevail in the future. Given the depth of the recent declines in confidence, the relatively small December gain does not substantially change the negative outlook for spending during the year ahead. Total consumer spending is expected to decline by about 1% during 2009, followed by an unusually slow recovery in 2010. That declines in pension accounts and home values, uncertainty about future job and income prospects, and continued restrictions on the availability of credit have made consumers much more interested in restoring their savings and reserve funds.
The Index of Consumer Sentiment was 60.1 in the December 2008 survey, up from 55.3 in November but substantially below last December’s 75.5 and the cyclical peak of 96.9 set in January 2007. The Index of Consumer Expectations, a closely watched component of the Index of Leading Economic Indicators, was 54.0 in December, barely above the 53.9 in November and well below last December’s 65.6 or the January 2007 cyclical peak of 87.6. All of December’s gain was in evaluations of current economic conditions, mainly due to price discounting. The Current Conditions Index rose to 69.5 in December from 55.3 in November.
Posted: December 23, 2008 Tuesday 10:02 AM