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University of Michigan Consumer Confidence increased in March to 98.4
The March gain in the Consumer Sentiment Index was entirely due to households with incomes in the bottom two-thirds of the income distribution, whereas the February gain was concentrated among upper income households, according to the latest University of Michigan Surveys of Consumers.
Reports of income gains were at record levels, the largest proportion to report income gains since 1966. Rising incomes were accompanied by lower expected year-ahead inflation rates, resulting in more favorable real income expectations, said U-M economist Richard Curtin, director of the surveys.
Rather than indicate an emerging recession, the data point toward continued economic growth, Curtin said. Too few interviews were conducted following the summary release of the Mueller report to have any impact on the March data; if there is any, it may affect the April data, he added.
“Consumer confidence has remained very strong during the past two years, with record proportions of consumers now citing income gains and low inflation,” Curtin said. “Nonetheless, consumers have continued to voice their dissatisfaction with increases in price and interest rates on homes and vehicles purchases.
“The level of resistance suggests that consumers will remain a force in keeping future inflation and interest rates at low levels. Unlike the past, when consumer behavior acted to promote booms as well as busts, consumers now act to diminish excesses. It is the consumer rather than the Fed who now takes away the punch bowl just as the party gets going.”
Record Strength in Personal Finances
Recently improved finances were cited by 56 percent of all consumers in March, just below the all-time record of 57 percent recorded last March and in February 1998. Reported income gains were cited by 47 percent of all consumers, matching the June 2018 reading; a higher proportion was last cited in 1966 (50 percent, the all-time peak).
When asked about how they anticipated their income to change in the year ahead, the anticipated gain of 2.6 percent was the highest since 2007. Declines in the year-ahead inflation rate also meant that real income expectations rose to their highest level since the January 2000 survey.
Improved Year-Ahead Outlook for Economy
Consumers voice the most positive outlook for the national economy since the Great Recession, with 56 percent expecting good times financially in the economy as a whole.
While longer term prospects for the economy remained positive, they were largely unchanged from last month or last year; nearly equal proportions expected an uninterrupted expansion or a downturn sometime in the next five years. Rather than declining interest rates in the year ahead, the majority of consumers continued to anticipate additional increases in interest rates in 2019.
Consumer Sentiment Index
The Consumer Sentiment Index was 98.4 in March 2019, up from 93.8 in February 2019 but still below the fifteen-year peak of 101.4 set last March. The Expectations Index rose to 88.8 from 84.4 in February and equal to last March’s figure. The Current Conditions Index rose to 113.3 from last month’s 108.5 but was well below last year’s 121.2.
Consumer confidence rebounded in March to 98.4 from last month's 93.8, slightly above the average of 97.2 recorded in the past 26 months. The March gain in the Sentiment Index was entirely due to households with incomes in the bottom two-thirds of the income distribution, posting a gain of +7.1 Index-points, while households with incomes in the top third fell by 1.1 Index-points. Middle and lower income households more frequently reported income gains than last month, although income gains were still widespread among upper income households. Indeed, the last time a larger proportion of households reported income gains was in 1966. Rising incomes were accompanied by lower expected year-ahead inflation rates, resulting in more favorable real income expectations (see the chart). Moreover, all income groups voiced more favorable growth prospects for the overall economy. While no further decline in interest rate expectations was recorded in March, the data suggest that consumers anticipated additional increases in 2019. Finally, it should be noted that too few interviews were conducted following the summary release of the Mueller report to have any impact on the March data; if there is any, it may affect the April data. Overall, the data do not indicate an emerging recession but point toward slightly lower unit sales of vehicles and homes during the year ahead.
Posted: March 29, 2019 Friday 10:00 AM