Research >> Economics
University of Michigan Consumer Confidence Improved
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Consumer confidence rose in January to its highest level in two years due to a more favorable outlook for the national economy. Despite the expected gains in the economy, consumers still anticipate no improvement in their overall personal financial situation. In past economic cycles, consumers typically expected gains in their own finances to be as rapid as gains in the overall economy. This is not the case currently for substantial reasons. Consumers are overwhelmingly convinced that the worst is over but nonetheless expect stagnating income and job prospects rather than solid growth during the year ahead. Moreover, consumers feel quite vulnerable given the still fragile condition of their investments and reserve funds, the burden of their debts, especially those underwater on their mortgages, the negative impact of foreclosures and bankruptcies on their communities, and the impact of continued credit constraints that limit their flexibility. Although recent gains have extended to buying plans, it is still true that job and income uncertainty dominates purchase plans to a significant extent.
Personal Finances Still Dismal
The January survey recorded a slight shift away from more negative finances; unfortunately, more consumers anticipated stagnating incomes rather than expected improved finances. The proportion of households who reported that their finances had worsened fell slightly to 45% in January, down from 49% in December and 53% last January. Twice as many consumers still reported income declines as increases. There was no increase in the proportion of consumers that reported improved finances, however; it remained at just 22%. The shift was toward more reports of unchanged finances. Moreover, when asked about income prospects for the year ahead, 56% of all households anticipated no net income increase. Consumers’ assessments have remained on balance negative for more than two years.
The Sentiment Index posted a 2.6% gain from last month and was 21.6% above last January’s reading, with the Expectations as well as the Current Conditions components improving by comparable amounts during the past year. Following significant gains in early 2009, the pace of improvement has slowed but still remains positive. The data indicate that total real personal consumption expenditures will increase by about 1.8% during 2010, the slowest exit from a recession in consumer spending in the post WWII period.
Posted: January 29, 2010 Friday 10:00 AM