Research >> Economics
University of Michigan Consumer Confidence edged upward in March to 96.9
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The continued strength in consumer senti-ment has been due to optimistic views on three critical components: higher incomes and wealth, more favorable job prospects, and low inflation expectations. All of these factors, however, have been influenced by partisanship. Democrats expect an imminent recession, higher unem-ployment, lower income gains, and more rapid inflation, while Republicans anticipate a new era of robust growth in incomes, job prospects and lower inflation. It is a rare situation that combines increasing optimism which promotes spending as well as rising uncertainty which makes consumers more cautious spenders. The data indi-cate that spending will advance by 2.7% in 2017, but those gains will be uneven over time and across products.
Partisan Impact on Personal Finances
Partisanship had a large impact on how consumers expected their personal finances to change during the year ahead. Nearly twice as many Republicans as Democrats expected their personal finances to improve during the year ahead in the March 2017 survey. Incomes were expected to increase by 3.0% among Republicans, while Democrats anticipated only a 1.0% gain, with self-identified Independents expecting income gains of 2.7%.
Partisan Economic Outlook
Expectations regarding future economic conditions remained highly partisan. Continuous good times in the economy over the next five years were expected by 83% of Republicans, but only 24% of Democrats. In contrast, renewed economy-wide downturns were anticipated by 68% of Democrats, but only 13% of Republicans. Perhaps even more extreme were expectations regarding unemployment: 74% of Republicans anticipated a declining jobless rate, while just 13% of Democrats expected a lower jobless rate.
Consumer Sentiment Index
The Sentiment Index was 96.9 in the March 2017 survey, just above the 96.3 in February and well above last March’s 91.0. The Current Conditions Index was 113.2 in March, up from 111.5 in February and last March’s 105.6, and the highest level in a decade. The Expectations Index was unchanged in March from last month at 86.5 and down from 90.3 in January and below the 2015 peak of 91.0.
There are two factors that aid our under-standing of recent trends in sentiment. First, the Democratic and Republican parties have had unusual success in convincing their members that government economic policies are by far the most important determinants of economic outcomes. Second, like economists who have lowered growth pro-spects, consumers have done the same, and have thus judged lower rates of growth more favorably than they would have in an earlier era. While the partisan divide will likely recede in the months ahead, consumers’ new evaluative standards will resist change. Consumers will become very optimistic when growth approaches 3.0%. In an earlier era, consumers would have been quite pes-simistic at 2017 prospects for 2.3% economic growth.
Posted: March 31, 2017 Friday 10:00 AM