Research >> Economics
University of Michigan Consumer Confidence Improved
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Confidence improved in December mainly due to widespread price discounting by merchants attempting to spark holiday sales as well as somewhat more positive expectations for economic growth and employment. More consumers cited the availability of deep price discounts on a wide range of household goods than ever before in the sixtyyear history of the surveys. News reports of job gains were more common in December—22% reported hearing news of job gains in early December, up from just 1% last December. News reports of job losses, however, were still more dominant, although they have declined to 45% from 60% last December. While just one-in-five expected the economy to further worsen during the year ahead, consumers were evenly split between the expectation of continued improvement and unchanged conditions in the economy. Consumers can be accurately described as much less pessimistic than a year ago—54% expected unfavorable economic conditions, down from 76% last December—largely due to the impact of the stimulus on overall economic conditions.
Consumers reported that the economy was slowly improving and thought that the unemployment rate would only marginally increase. While most think the worst is over; the problem is that consumers are still quite uncertain about when prospects for their own finances will improve. Even when consumers become convinced that sustained gains will be forthcoming, there will still be strong spending headwinds, including intentions to add to their savings and reserve funds and to decrease their indebtedness as well as continued restraints on the availability of credit. Overall, the data suggest consumer spending will rise by just 1.6% in 2010.
Personal Finances Still Dismal
Although consumers’ evaluations of their current finances improved in December, these assessments remained quite negative. A worsening financial situation was reported by 49% in early December, barely below the 53% in November and the 57% last December. Nonetheless, it was the lowest proportion that reported worsening finances since September 2008. While reports of income declines still remained widespread, recent income increases grew in frequency, especially among higher income households. For the year ahead, however, half expected no increase in their household’s income, and those diminished expectations held across all income groups. Even inflationadjusted income expectations remained quite negative in December, as just oneinseven expected any real income gains during the year ahead despite lower inflation expectations.
The Sentiment Index posted a 7.6% gain from last month and was 22% above last December’s reading. Most of the improvement during the past year was in consumers’ expectations for the general economy, as evaluations of their personal finances have remained quite grim. While the December gain signals that better times are ahead, three months ago a comparable gain was quickly reversed, indicating the tentativeness of the recent gains
Posted: December 23, 2009 Wednesday 10:00 AM