Consumer sentiment improved in September from its depressed August reading due to more favorable income trends, especially among middle income households, according to the University of Michigan Surveys of Consumers.

The overall trends in confidence remain favorable, but have begun to slowly erode, said U-M economist Richard Curtin, director of the surveys. The Sentiment Index for the 3rd quarter of 2019 (93.8) was only slightly below the averages for the first half of 2019 (96.5) as well as for the average for 2017 and 2018 (97.6).

The slow erosion has been due to rising levels of economic uncertainty. Some of these concerns are rooted in partisanship, some due to conditions in the global economy, and some are tied to domestic economic policies, especially tariffs, Curtin said. Overall, the outlook is for slower but positive growth in consumption, which is contingent on only a modest impact from uncertainty on jobs and wages.

“The September data indicate that gains in jobs and incomes have largely, but not completely, offset concerns about tariffs and other sources of uncertainty,” Curtin said. “At present, tariffs have had the greatest negative impact on consumers, with a near record one-third of all consumers negatively mentioning trade policies in September when asked to explain in their own words the factors underlying their economic expectations.

“Aside from the political fallout, impeachments can divert the attention of the president and Congress away from the economy, and have in the past caused consumers to lose confidence that the government will respond appropriately to counter a recessionary threat.”

Consumers Expect Slower Job Growth to Persist

More consumers reported unfavorable news about the economy in September than in eight years, since September 2011. While a good share of the news involved tariffs and other economic policies, there were nearly as many reports on job losses as job gains.

Last year, references to increasing numbers of jobs exceeded the proportion that anticipated a reduced pace of job growth by more than two-to-one. Importantly, despite the expected slowdown, consumers do not anticipate that the economy will fall into recession during the year ahead.

Strength in Personal Finances Reaches Middle-Income Households

Half of all households reported that their personal financial situation had recently improved in the September survey, as they have for most of the past year. Most of the net September gains were recorded by middle-income households (32%), who more frequently cited income gains than households with incomes in the top third (29%).

Expected annual gain in income was 2.0% across all households, but rose to 2.4% among middle-income households. Households with incomes in the lowest third also improved in September, but those gains were to a more modest extent.

Consumer Sentiment Index
The Consumer Sentiment Index rose to 93.2 in September 2019, up from 89.8 in August but remaining well below last September’s 100.1. The Expectations Index rose slightly to 83.4 from last month’s 79.9 but remained below last year’s 90.5. The Current Conditions Index rose to 108.5 from last month’s 105.3, but remained below last year’s 115.2.

Consumer sentiment continued to post small increases throughout September due to more favorable income trends, especially among middle income households. The overall trends in the Sentiment Index remain quite favorable, but show signs of a slow erosion. The Sentiment Index for the 3rd quarter of 2019 (93.8) was only slightly below the averages for the first half of 2019 (96.5) as well as for 2017 and 2018 (97.6). Despite the high levels of confidence, consumers have also expressed rising levels of economic uncertainty. Some of these concerns are rooted in partisanship, some due to conditions in the global economy (Brexit, Iran, Saudi Arabia, China), and some are tied to domestic economic policies. Trade policies have had the greatest negative impact on consumers, with a near record one-third of all consumers negatively mentioning trade policies in September when asked to explain in their own words the factors underlying their economic expectations (see the chart). These and other policy concerns have so far been held in check by positive finances, although fewer consumers now anticipate higher wages or lower rates of unemployment in the year ahead. Impeachments divert the attention of the President and Congress away from economic policies, and may become conflated with partisan strategies. While the outlook is for a slower but positive growth in consumption, that outlook is contingent on only modest impacts on jobs and wages from the array of potential issues facing the economy.