The overall level of confidence remained largely unchanged in August as consumers did not panic in the face of slowing economic growth and the media’s double-dip drumbeat. The bad news is that consumers expect lackluster income and job growth for an extended period of time. This “new normal” outlook has encouraged consumers to pare down their debts and increase their reserve funds. While the data indicate a slowdown in the pace of growth in consumption that will last into 2011, outright declines in consumer spending are very unlikely. Nonetheless, the finances of consumers remain quite weak, and any additional erosion could quickly reduce their spending even more.

Lackluster Income and Job Prospects
Just one-in-four households reported that their finances had recently improved in the August survey, and just one-in-four expected any improvement in their finances in the year ahead. While income gains were reported by one-fifth of all households in August, the highest proportion in two years, those gains were still less than half as common as ten years ago. Moreover, half of all households not only anticipate no increase in their income, but also expected their inflation-adjusted incomes to decline during the year ahead. Job prospects remained grim as well. Eight-in-ten consumers did not expect any decline in the unemployment rate in the year ahead. While unemployment expectations were twice as positive as two years ago, the entire gain was due to a shift from anticipating additional increases to the expectation that unemployment would remain unchanged at high levels. Consumers attributed the lack of employment gains to the ongoing slowdown in economic growth. While consumers did not expect renewed declines in the economy in the year ahead, just one-in-three anticipated that the economy would be characterized by uninterrupted growth over the next five years.

The Sentiment Index was 68.9 in the August 2010 survey, slightly above the 67.8 in July and last year’s 65.7. The Current Conditions Index improved by 17.6% from a year ago, due to more favorable personal finances situation as well as improvements in the economy. More importantly, a decline of 3.2% was recorded in the Expectations Index, a component of the Index of Leading Indicators.

Optimism has been the primary characteristic of American consumers during the past half century. To be sure, consumers repeatedly suspended that optimism around recessions, but the suspension was always considered temporary. Now economic uncertainty reigns. It is far too early to declare that consumer pessimism has become the new default outlook of consumers. Nonetheless, the economic uncertainty that now exists has caused consumers to reduce their spending and increase their precautionary saving. The lesson of the financial crisis for consumers was that their best defense against economic adversity was to reduce their own debt.

Confidence tumbled in July due to heightened concerns about personal financial prospects as well as the overall economic outlook. Income and job prospects were extraordinarily weak and those bleak prospects have made consumers more cautious spenders. Rather than the economy gaining strength, consumers now anticipate a slowing pace of growth, and rather than economic policies acting to improve prospects, the policies of the Obama administration have increased economic uncertainty among consumers. Overall, the data suggest that the current slowdown in spending is likely to persist well into 2011 as it reflects a widespread and general realignment of job and wage expectations. While a double dip is still unlikely, it now has a non-ignorable 25% probability.

Grim Outlook for Personal Finances
Nearly a year after the economic recovery began, the financial situation of consumers has continued to weaken mainly due to the loss of jobs and work hours as well as stagnating incomes. Half of all consumers reported that their finances had worsened this July as well as in last July’s survey. The smallest proportion ever recorded in the sixty year history of the surveys anticipated an increase in their household’s income during the year ahead. Moreover, eight-in-ten consumers expected no improvement in the unemployment rate during the year ahead.

Consumers sensed a slowdown in economic growth. The backslide meant that six-in-ten consumers judged prospects for the economy unfavorably, and just one-in-three consumers anticipated uninterrupted economic growth during the next five years. Confidence in economic policies fell to the lowest level in the July survey since the start of the Obama administration. While the effectiveness of Obama’s policies in creating jobs remained the top concern, the rising level of federal debt and prospects for higher future taxes have gained a foothold as well.

The Sentiment Index was 67.8 in the July 2010 survey, down sharply from the 76.0 in June, erasing the entire gain since 66.0 was recorded last July. The Expectations Index, a component of the Index of Leading Indicators, declined by 10.7% in July, falling to the lowest level since March of 2009. The Current Conditions Index also posted a double digit decline, but it remained above last year’s 70.5.

Scarce jobs and stagnating incomes have been the top concerns of consumers for some time. What changed in July was their recognition that the anticipated slowdown in the economy will keep jobs scarce for some time, while their uncertainties about future prospects were increased by the policies of the Obama administration. Rather than itching to resume old spending habits, consumers have begun to actively embrace a more defensive outlook, making them more likely to further pare their debt and increase saving and reserve funds. This new defensive posture could result in even slower economic growth and fewer jobs in the future.

The slow rise in the Index of Consumer Sentiment during the past year has been due to how consumers view current conditions in the economy. The improvement was not because consumers now view the economy more favorably, but that any improvement, however small, was seen as a welcome development after the unprecedented economic recession. News heard about jobs has changed dramatically, for example. Reports of net job changes rose to the most favorable level in five years in June. Despite the gains, consumers did not anticipate significant declines in unemployment in the year ahead. Rather, the majority of consumers expected unemployment to remain largely unchanged at current levels during the next twelve months.

Personal Finances Key to Improved Spending Prospects
Heightened and persistent concerns among consumers with the outlook for their personal finances is the most distinctive aspect of the current recovery. Although recently improved, consumers were still nearly twice as likely to report that their finances had continued to worsen than improve. Nonetheless, the proportion of consumers that reported worsening finances fell to 44% in June of 2010 from 54% a year ago. Twice as many households reported income declines as income gains, which has barely changed in the past few months or compared with a year ago. Financial prospects for the year ahead were no better in June than a year ago, as 55% of households expected no income increase during the year ahead.

Consumer Sentiment Index rose modestly in June to 76.0 from 73.6 in May and 70.8 last June, the gain was enough to push the Sentiment Index to its highest level since January 2008. The cumulative gain from the low of 55.3 in November 2008 has restored half of the decline from the January 2007 peak of 96.9. The Expectations Index, a component of the Index of Leading Indicators, also reached its peak in January 2007 a year before the start of the recession and two years before it was declared by NBER. The Expectations Index recorded its trough in June 2008, also about one year before the end of the recession although NBER has yet to declare an end date. Unfortunately, during the past 12 months the Expectations Index has not posted any further gains, signaling that consumers expect a very slow pace of growth in the year ahead.

The June survey indicated that consumers expect economic growth to slow, and as a result, anticipate that the unemployment rate will remain largely unchanged through the balance of the year. Weak financial prospects, including lackluster job and income growth as well as tight credit remain the primary constraint to a more robust spending outlook. Overall, confidence is strong enough to sup-port the continued growth in consumption, although the pace of growth will slow into the start of 2011. The survey data indicate real spending growth will average 2.5% in 2010.

The Index of Consumer Sentiment has remained largely unchanged during the past three months at the same improved level first recorded last September. Although the overall level has not changed, there has been significant shifts in the components of confidence as well as across population subgroups. Consumers’ evaluations of current economic conditions have improved while expectations about future economic prospects have weakened. Although fears of unemployment have receded at a record pace, consumers also anticipated that the pace of the ongoing recovery would continue to slow during the year ahead.

Personal Finances Improve Among Upper Income Households
It was mainly upper income households who reported improved personal finances, while households with incomes below $75,000 continued to report high levels of financial distress. Recent financial changes differed dramatically by household income, as those with incomes above $75,000 reported significant gains while lower income households reported even larger reversals. Among higher income households, recent financial progress was reported more frequently than reversals for the first time in nearly two years, while among those with incomes of less than $75,000, financial setbacks were reported three times as frequently as gains. These differences were reflected in buying plans. Among consumers with incomes over $75,000, buying plans for vehicles rose to their most favorable level in nearly five years and purchase plans for household durables rose to their best reading in two and a half years. These gains were contingent on the availability of price discounts—two-thirds of high income households mentioned price discounts for vehicles and nearly half for durables.

The Consumer Sentiment Index has remained virtually unchanged at 73.6 since last September’s 73.5, although signifi-cantly higher than last May’s 68.7. Nearly the entire year-to-year gain was due to more favorable evaluations of the Current Conditions Index, as the Expectations Index remained largely unchanged. The lack of continued gains in the Expectations Index, a component of the Index of Leading Economic Indicators, foreshadows a slowdown in the pace of recovery in the 2nd half of 2010 and into early 2011.

The May survey data indicate that consumers expect modest declines in the rate of unemployment as well as small increases in inflation and interest rates during the year ahead. Unfortunately, consumers also anticipate a slower pace of recovery and that the gains in employment in the year ahead will be distressingly small. Nonetheless, financial gains among upper income households will continue to foster growth in overall consumer spending, although the pace of spending growth will slow dur-ing the balance of the year and into the start of 2011.

The Index of Consumer Sentiment declined slightly in April from March but was significantly higher than a year ago. Most of the year-to-year gains reflected more favorable assessments by consumers of current economic conditions. Expectations for future economic gains posted only minor gains since last April, although they are much more positive than at the cyclical low recorded two years ago in June 2008. Importantly, in the past few months, despite the widespread recognition of the ongoing recovery, consumers have become less optimistic about longer term prospects for the economy. Just one-third of all consumers in the April survey expected the recovery to be uninterrupted by another downturn sometime in the next five years.

Personal Financial Prospects Remain Grim
Consumers expected the economy to continue to improve during the year ahead, and fears of additional job losses have largely disappeared. Nonetheless, most consumers expect only small gains in employment and no income increases during the year ahead. A worsening personal financial situation was reported in April twice as frequently as gains, showing no sustained signs of improvement in the surveys during the past year. Income de-clines were cited by one-third of all households, as they have in every month during the past year. Moreover, when asked about their financial prospects for the year ahead, consumers were less optimistic than anytime during the past year. Overall, just 28% of all households expected their finances to improve, down from 31% recorded last April. Although the inflation rate is expected to remain relatively low, most consumers expect declines in their inflation adjusted incomes during the year ahead.

Consumer Sentiment Index
The Sentiment Index has remained virtually unchanged since the December 2009 reading of 72.5. Both the Expectations Index as well as the Current Conditions Index were largely unchanged in the past three months, although compared with a year ago, gains in the Expectations Index have been small (+5.4%) compared to the substantial gains in Current Conditions (+18.6%). The modest improvement in the Expectations Index, a component of the Index of Leading Economic Indicators, following strong gains to mid 2009, foreshadows a slowdown in the pace of recovery in the 2nd half of 2010 and into early 2011.

The April survey data indicate that consumers think the recovery is well underway, although most think it will be distressingly slow and have little immediate impact on their personal finances. Despite being more optimistic about the near-term economic outlook, consumers have become less positive about long-term prospects for the overall economy. Confidence in the economic policies remained at low levels, reversing all the gains made earlier in the Obama administration. Overall, the data are consistent will growth in inflation adjusted total personal consumption expenditures of 1.9% in 2010.

The Index of Consumer Sentiment was unchanged in March from the February survey and nearly identical to the level recorded six months ago. Following the sizable gains recorded from the recession lows set more than a year ago, confidence has moved sidewards with only small variations during the past six months. Consum-ers reported gains in the overall economy and expected the economy to continue to improve during the year ahead. Despite these expected gains in the economy, consumers’ evaluations of their own financial situation have re-mained grim due to the widespread expectation that improvement in their job and income prospects will be very small during the year ahead.

Divergence Between National and Personal Economic Prospects
Consumers continued to report improvement in the economy, and expected the economy to improve by more than a two-to-one margin in the year ahead. One-in-four consumers reported hearing news of job gains in March, up from less than one-in-twenty a year ago. To be sure, consumers are still convinced that over the next five years some economic setbacks will occur rather than uninterrupted economic growth. And the pace of eco-nomic growth is still anticipated to be slow, with the unemployment rate expected to post only marginal declines in the year ahead. While the financial situation of consumers did improve slightly in March, the overall judg-ments of consumers remained quite grim—45% reported that their finances had worsened, down from 55% last year, and just 22% reported improvement, only marginally above last year’s 19%. More than one-in-three re-ported income declines, and 55% expected no income gains during the year ahead. These concerns have made their buying decisions contingent on the availability of price discounts, with vehicle sales benefiting in March.

The Consumer Sentiment Index was equal to last month’s reading and nearly identical to the 73.5 recorded in September, but was 28% above last March’s reading. While the initial gain from the cyclical low was rapid, confidence has languished at those improved levels during the past six months. Gains in the Index of Current Economic Condi-tions (+12.3%) have offset some erosion in the Consumer Ex-pectations Index (-7.6%) during the past six months.

Consumers anticipated the economy to improve but nonetheless expected their own personal financial situation to remain unfavorable during the year ahead. This situation is not unusual. It simply indicates that expectations about the economy change more eas-ily and earlier than people’s evaluations of their finances. Closing this gap, however, will take longer than in the past given that very small gains in jobs and incomes are anticipated in the balance of 2010. Overall, the data indicate that inflation adjusted personal consumption expenditures can be expected to increase by 1.9% in 2010.

Confidence has remained largely unchanged during the past three months at much improved levels compared with a year ago. The halt in improvement has been due to the widespread recognition among consumers that job and income prospects will remain grim throughout the year ahead. Although the survey revealed no significant additional declines in income or job prospects, these critical expectations remained at the same record low levels recorded throughout the past year. Few consumers anticipated any significant declines in the jobless rate anytime soon. More importantly, the majority expected recurrent economic weaknesses over the next several years. Buying plans are more dependent than ever on the availability of discounts. For a large range of household durables—appliances, furniture, home electronics and the like—discounts have moderately improved buying plans, but for vehicles, smaller and less frequent discounts have dimmed consumers’ purchase plans.

Grim Outlook for Personal Finances
When asked about their financial prospects for the year ahead, just 25% of all consumers expected their finances to improve, barely above the 22% recorded one year ago. Sixty percent of all consumers expected no income gains during the year ahead in February, which was the least favorable income expectations ever recorded in the history of the surveys. Even low inflation has not eased the expected burden as just one-in-ten households anticipated any gains in their inflation-adjusted incomes in the year ahead. The absence of any improvement in their financial prospects has prompted just 14% of all consumers to express confidence in the economic policies of the Obama administration in February, down from a peak of 30% in May 2009, and barely above the all-time low of 4% recorded in the closing months of the Bush administration.

The Sentiment Index posted a small loss amounting to –1.1% from last month but was 31% above last February’s reading. While the initial gain from the cyclical low was rapid, the improvement came to a halt in the past few months. Slower economic growth is anticipated in the first half of 2010, and consumers expect no improvement in job and income conditions.

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.

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

Consumer confidence suffered a small setback in November as consumers reported continued reversals in their personal financial situation. The grim financial realities faced by consumers rose to the worst levels ever recorded in more than sixty year history of the survey. Consumers’ assessments of their finances have been the grimmest since 1946, and have remained at those record low levels for most of the past two years. As each month passes, the capacity of families to withstand the cumulative losses has pushed more and more households into financial hardship. Consumers cite their deteriorating finances as well as their uncertainty about future job and income prospects more than ever before, and this has made them very cautious spenders. Nonetheless, the 22% gain in the Sentiment Index from last year’s low points toward growth rather than declines in consumer spending in the year ahead. Inflation-adjusted total consumer spending, however, is expected to advance by a scant 1.5% in 2010.

The Index of Consumer Sentiment was 67.4 in the November 2009 survey, down from 70.6 in October and 73.5 in September, but substantially above the 55.3 recorded last November (the cyclical lowpoint). The Index of Consumer Expectations, a closely watched component of the Index of Leading Economic Indicators, was 66.5 in November, down from 68.6 in October and 73.5 in September, but significantly above last November’s 53.9. The Current Economic Conditions Index was 68.8 in November, down from 73.7 in October and 73.4 in September, but above the 57.5 recorded last November.

When asked to explain in their own words how their finances had changed, the smallest proportion in the sixty-year history of the survey reported income gains—just 9%—and the largest proportion voluntarily cited income declines—38%. Income losses were described in connection with everything from job losses and shorter work hours to the loss of bonuses and even wage give-backs. Even more distressing, the fewest consumers anticipated income gains and the gains expected were the smallest ever recorded.

While there is widespread agreement among consumers that the worst of the downturn is over, there is no agreement on when the economy will be strong enough to significantly lower the unemployment rate. To be sure, consumers no longer expect steep increases during the year ahead, as the data indicate that consumers believe the unemployment rate will peak at 10.7% by mid 2010. The problem is that consumers do not expect the unemployment rate to fall below 10% throughout the year ahead.

Uncertainty about job and income prospects caused a partial reversal in buying plans. When asked about purchases of large durables, like furniture, appliances, and home electronics, 39% mentioned that income uncertainty had caused them to postpone any purchases, only below the all-time peak of 47% set in last November’s survey. Robust gains in employment are required for more robust gains in consumer spending, which will wait until at least 2011. It is hard to imagine how the Obama administration will resist, during an election year, a new federal stimulus plan focused on relieving the economic stress caused by rising unemployment and lackluster income gains to avoid a potential relapse in consumer spending in mid to late 2010.

Consumer confidence has improved substantially from the lows recorded in late 2008, and consumers expect the economy to continue to recover during the year ahead. The ongoing economic recovery will be unlike any other due to changes in consumer spending preferences. Typical recoveries are driven by resurgent spending on homes, vehicles, and other large purchases. In the past, these spending preferences were unleashed as soon as the recovery began. Consumers now put debt reduction and increased savings at the top of their agendas rather than the quick resumption of postponed spending plans. These changed preferences are due to the extent of the financial reversals suffered by consumers, which spanned every aspect of their economic lives, as well as the widespread recognition among consumers that it will take years for them to fully recover. Estimated growth of total personal consumption expenditures at just 1.6% during 2010, well below the typical rebound in consumer spending during the first year following a recession.

The Index of Consumer Sentiment was 70.6 in the October 2009 survey, just below the 73.5 in September, but substantially above the 57.6 recorded last October. The Index of Consumer Expectations, a closely watched component of the Index of Leading Economic Indicators, was 68.6 in October, down from 73.5 in September but significantly above the 57.0 recorded last October. The Current Economic Conditions Index rose to 73.7 in October, just ahead of the 73.4 in September and well above the 58.4 recorded last October.

Consumers think that the economic policies of the Obama administration and the Federal Reserve have effectively ended the steep economic slide. While most consumers think the unemployment rate is close to its peak, very few think that it will decline anytime soon. Moreover, although consumers think the policies already enacted will benefit the near term economic outlook, they are not more optimistic about longer term prospects—31% expected a favorable long term outlook in October 2009, barely above the 28% recorded in October 2008.

The majority of consumers reported that their finances had worsened in October for the thirteenth consecutive month—the longest and deepest decline in the sixty-year history of the surveys. The fewest consumers ever recorded cited income gains in the October survey—just 12%, about one-third the level that reported income declines (32%). Moreover, for the first time in sixty years, the majority of families expected their incomes to remain unchanged or to decline during the year ahead—and that record was repeated in every monthly survey conducted during 2009.

Consumers reported some improvement in the availability of mortgage credit in October when asked about home buying conditions, but still held very negative views of selling their own home due to price declines. Vehicle buying plans declined as consumers viewed buying conditions less favorably due to fewer available discounts following the expiration of the cash-for-clunkers program. Higher vehicle sales in the 3rd quarter had a big but temporary impact on GDP, with higher vehicle output accounting for nearly half of the 3rd quarter GDP growth.

Improving economic conditions have increasingly convinced consumers that the recovery has begun, although few consumers anticipated any quick fixes to the dismal state of their own finances. Consumers were more optimistic about prospects for the national economy, inflation, and the unemployment rate, although most consumers thought their own finances would remain problematic for some time. After fearing a slide into the abyss of an economic depression in December, consumers voiced the first signs that the depression threat had ended in April, and by September concluded the recovery had begun. Nonetheless, consumer spending will remain in low gear for an extended period of time. Curtin pegged the growth of total personal consumption expenditures at just 1.6% during 2010, well below the typical rebound in spending during the first year following a recession.

The Index of Consumer Sentiment was 73.5 in the September 2009 survey, up from 65.7 in August, reversing the entire decline since last September and rising to the highest level since the start of 2008. The Index of Consumer Expectations, a closely watched component of the Index of Leading Economic Indicators, was 73.5 in September, up from 65.0 in August, and the highest level recorded since the September 2007 survey. The Current Economic Conditions Index rose to 73.4 in September, up from 66.6 in August and the highest level since last September’s 75.0.

The key factor that will hold back the usual upsurge in consumer spending is the dismal state of consumer finances. A majority of consumers judged their finances to have worsened in each of the past twelve months, with a record number of consumers reporting income declines in September. Six-in-ten families expected no income increases at all. Even lower inflation did not brighten real income prospects as just 13% expected inflation-adjusted income increases during the year ahead. Moreover, declines in home values, pension and investment accounts has made even those who have not suffered income declines more cautious spenders. The desire to decrease their debt and increase their savings remains the dominate motivation of nearly all consumers.

Twice as many consumers as three months ago reported hearing about favorable economic developments, with the primary focus on improving job prospects. The unemployment rate was expected to increase during the year ahead by 30% of all consumers in September, less than half the 69% who expected increases at the start of 2009. The data still indicate, however, that consumers expect the unemployment rate to continue rising until mid 2010.

Vehicle buying plans fell to a six month low in September following gains due to the “cash for clunkers” program. Views on home buying conditions were very favorable, but judgements about home selling conditions remained quite negative, scuttling most home buying plans. Buying plans for household durable goods improved slightly in September.

Consumers increasingly expect the economy to improve in the months ahead even as they report the worst assessments of their personal finances since the surveys began in 1946. Consumers were more likely to report hearing about positive economic developments in August, and more likely to expect the economy to improve during the year ahead. Unfortunately, this first ray of optimism was accompanied by the grimmest assessment by consumers of their personal finances since the Great Depression. Although the economic recovery is likely to have already started, consumers’ spending will remain in low gear for an extended period of time. Curtin pegged the growth of total personal consumption expenditures at just 1.6% during 2010. The problem looming on the horizon is that after the inventory correction and the exhaustion of the stimulus, consumer demand will not be strong enough to maintain a robust pace of economic growth after mid 2010.

The Index of Consumer Sentiment was 65.7 in the August 2009 survey, just below the 66.0 in July and the 67.5 in last year’s August survey. The Index of Consumer Expectations, a closely watched component of the Index of Leading Economic Indicators, was 65.0 in August, up from 63.2 in July and significantly above the 57.9 recorded last August. The Current Economic Conditions Index fell in August to 66.6, down from 70.5 in July and 71.0 last August.

The key August change was in the job situation. News of job losses declined significantly, with the August survey tallying less than half the reports of job losses recorded just six months ago. Consumers believed the unemployment rate was nearing its cyclical peak, although most thought it would still increase to just above 10%. Although consumers expect the employment situation to stabilize, they do not expect sustained gains in employment during the year ahead.

Despite these hopeful signs, consumers still provided a grim assessment of their finances. Just 16% of all consumers reported that their finances had improved, the smallest proportion recorded since this question was first asked in 1946. Moreover, just one-in-four consumers anticipated any income gains during the year ahead as the majority expected declining or stagnating incomes. Even with low inflation, just 13% anticipated any inflation-adjusted income gains during the year ahead.

Consumer confidence slipped in July as consumers anticipated that their personal finances would improve more slowly than they had anticipated several months ago. While consumers believe the economic free-fall is now over, consumers see little reason to believe that the economic stimulus package will improve their finances anytime soon. Financial reversals were reported with equal frequency across all income subgroups, as was the expectation that joblessness would continue to increase. It is difficult to determine whether the recent loss in confidence simple reflects the impatience of consumers or the sprouting of changed assessments of the effectiveness of the stimulus policies. In either event, economic apprehensions can be expected to increase along with rising unemployment and stagnant incomes during the months ahead. Although consumer spending will improve during the balance of 2009, total personal consumption expenditures will post an lackluster increase of 1.5% during 2010.

The Index of Consumer Sentiment was 66.0 in the July 2009 survey, between the 70.8 in June and the 61.2 recorded in last year’s July survey. The July 2009 reading was the fourth positive year-to-year change since mid 2007. The Index of Consumer Expectations, a closely watched component of the Index of Leading Economic Indicators, was 63.2 in July, down from 69.2 in June but well above last July’s 53.5. The Current Economic Conditions Index also fell in July to 70.5 from 73.2 in June but remained below last July’s 73.1.

Recent income gains were reported by the fewest consumers in the more than sixty-year history of the survey. Moreover, a worsening financial situation was reported by the majority of consumers, and these financial reversals were as common among upper as lower income households. Financial prospects for the year ahead were equally gloomy across all income groups. Expected income gains were barely positive, with the expected annual income increase barely above zero—just two-tenths of a percentage point.

Consumer confidence posted its fifth consecutive monthly improvement in June, rising a total of 28% since its November low. “Consumers have become convinced that the steepest economic declines are now over, but very few consumers anticipate a quick end to the recession,” according to Richard Curtin, the Director of the Reuters/University of Michigan Surveys of Consumers. The personal financial situation of consumers remained dismal in the June survey. “The majority of consumers reported that their financial situation had recently worsened, with income declines reported three times as frequently as income gains,” noted Curtin. Consumers have stressed their intent to rebuild their savings and to reduce their debts. Although consumer spending will improve during the balance of 2009, total personal consumption expenditures will post an anemic increase of 1.6% during 2010.

The Index of Consumer Sentiment was 70.8 in the June 2009 survey, up from 68.7 in May, and well above the 56.4 recorded last June—the third positive year-to-year change since mid 2007. The Sentiment Index has now regained 15.5 points out of its total loss of 41.6 points from its January 2007 of 96.9. The Index of Consumer Expectations, a closely watched component of the Index of Leading Economic Indicators, was 69.2 in June, barely changed from the 69.4 in May but well above the 49.2 recorded last June. The entire increase in overall confidence was due to a rise in Current Economic Conditions Index to 73.2 in June up from 67.7 in May and 67.6 last June. The economic news heard by consumers was less negative but still quite bleak: negative developments were reported three times as frequently as positive news in June, but this represented a vast improvement from six months ago when consumers reported hearing ten times more negative than positive economic news. The majority of consumers still expect the economy to be mired in unfavorable financial conditions in the year ahead, if not longer.

Consumers continued to report a heightened level of financial distress. The majority of families reported that their financial situation had recently worsened in June due to income declines, shorter work hours, and lost jobs. Two-thirds of all families expected their finances to remain in the same dismal state or further worsen in the year ahead. Just 12% of consumers anticipated that their inflation adjusted income would increase. “Since the start of 2009, the size of income gains expected by consumers has been the smallest ever recorded in the history of the surveys—averaging less than one-half of one percent,” Curtin explained.

Consumer confidence rose in May as consumers became increasingly convinced that the economy is in its final stages of contraction and that President Obama’s stimulus programs would spark renewed economic growth. While consumers anticipate an improved economy, they nonetheless think that their own financial situation will improve only marginally during the year ahead. Consumers still view their finances as out of balance with the economic realities they now face, and want to continue to increase their savings and reduce their debts. These intentions will mute the pace of spending gains during the year ahead.

The Index of Consumer Sentiment was 68.7 in the May 2009 survey, up from 65.1 in April and 57.3 in March, and above the 59.8 recorded last May—the second positive year-to-year change since mid 2007. The Sentiment Index is still 30% below its January 2007 of 96.9. The Index of Consumer Expectations, a closely watched component of the Index of Leading Economic Indicators, rose to 69.4 in May from 63.1 in April and 50.5 in February, a jump of 27% during the past three months. The Expectations Index was well above last May’s 51.1, but still 21% below its January 2007 peak of 87.6.

A psychological sign that the cyclical bottom has been reached is when the base of comparison used by people shifts from the prior peak to the recent trough. Compared with the state of the economy six months ago, consumers have indeed regained a good measure of confidence. Compared with the prior peak, however, consumer confidence remains at relatively low levels. This is especially true of people’s views of their own finances. The majority of consumers in May reported that their financial situation had worsened primarily due to income declines, shorter work hours, and lost jobs. When asked to explain in their own words how their finances had changed, an all time record number of consumers mentioned that their income had declined—cited by 36%. More importantly, consumers expected an overall income increase of just two-tenths of one percent, the smallest expected income gain ever recorded in the long history of these surveys. Even given the currently low inflation rate, only onein-ten consumers expected real income gains during the year ahead.

Consumer confidence increased in April due to the widespread perception that President Obama’s economic policies will be effective in improving economic conditions. Two-thirds of all consumers anticipated that the economic policies of the Obama administration will be effective in improving national economic conditions, with most of the gains anticipated over the next several years. Favorable views about the effectiveness of Obama’s policies to improve the financial situation of consumers were not as widespread, as four-in-ten consumers thought the policies would be effective in improving their own financial situation. Consumers continued to report that their finances remained dismal and their buying plans were still on hold due to concerns about their future job and income prospects.

The Index of Consumer Sentiment was 65.1 in the April 2009 survey, up from 57.3 in the March, and just above the 62.6 recorded last April—the first positive year-to-year change since mid 2007. The Sentiment Index is still 33% below its January 2007 peak of 96.9. The Index of Consumer Expectations, a closely watched component of the Index of Leading Economic Indicators, was 63.1 in April up from 53.5 in March and well above last April’s 53.3 (but still 28% below its January 2007 peak of 87.6). Consumers who thought Obama’s policies would be effective in improving the national economy and their own finances voiced much more positive economic expectations than those who thought the policies would be ineffective—a difference of 36.3 points on the Expectations Index.

The financial situation of consumers remained dismal. Despite the strong improvement expected in the overall economy, consumers reported only marginal gains in their job and income prospects. Unemployment was expected to rise by 53% of all consumers, representing only a small improvement over the 61% recorded in the prior two months. Annual income increases of just three-tenths of one percent were expected by consumers in the April survey, barely above the half century low of two-tenths of one percent recorded in March.

When asked to assess President Obama’s policies, 65% thought that they would be effective in improving the national economy and 43% of all consumers thought that they would be effective in improving their financial situation. Taking account of both policies, 41% thought the policies would improve both the national economy and their personal finances, while 33% thought the policies would neither help the national economy nor improve their personal finances. The balance of consumers (26%) thought the policies would either benefit the economy or help improve their finances but not both.

Consumer confidence remained largely unchanged in March near the same record low levels recorded since last October. The good news is that the free fall in confidence has ended. The bad news is that consumers expect their financial situation to remain dismal for the rest of 2009. Consumers reported the largest two-month gain in confidence in the government’s economic policies, although consumers were still slightly more likely to rate economic policies unfavorably than favorably. Importantly, the stimulus package was expected by consumers to be more effective in aiding the general economy than in improving their own financial situation. Overall, consumers remained intent on increasing their saving and reserve funds even at the cost of not taking advantage of the deeply discounted prices that are now available.

The Index of Consumer Sentiment was 57.3 in the March 2009 survey, just below the 56.3 in February and well below last March’s 69.5 and the cyclical peak of 96.9 in January 2007. The Sentiment Index has averaged 58.0 in the past six months, which represents a record decline of 40% from its cyclical peak. The Index of Consumer Expectations, a closely watched component of the Index of Leading Economic Indicators, was 53.5 in March, up from 50.5 in February and nearly equal to last March’s 53.3, but substantially below the peak of 87.6 in January 2007.

The financial situation of consumers is dismal. The fewest consumers in the history of the survey reported that their finances had improved during the past year, with an all-time record number mentioning that their incomes had declined in the past year. Moreover, consumers anticipated the smallest annual income gains ever recorded—just 0.2%, down from 2.5% a year ago. Consumers favored saving a greater share of their incomes than they have in the past. Higher savings intentions were reported by four-in-ten consumers, and half of all consumers reported that they intended to reduce their debt during the year ahead.

Consumer confidence declined in February as consumers came to the consensus view that the economy would remain in recession throughout 2009. Moreover, nearly two-thirds anticipated that the downturn would last five more years. More consumers than at any other time in the past fifty years have voiced their concerns about the deepening recession and rising unemployment. Few consumers now expect the recession to end anytime soon even with the aid of the new stimulus package recently signed into law. Recent economic developments reported by consumers have been quite negative, ranging from bailouts of banks and manufacturers, mortgage foreclosures and bankruptcies, the freezing of credit markets, and plunging home and stock prices. Despite the many aspects of the current economic crisis, the single event that has dominated the concerns of consumers has been the rapid increase in joblessness. Consumers expect the unemployment rate to rise to 9% before the end of 2009, and their heightened concerns about their future job and income prospects have prompted consumers to reduce their spending. Overall, the data indicate that total real personal consumption spending is expected to decline by -1.6% in 2009, twice as steep as the worst prior annual decline since WWII.

The Index of Consumer Sentiment was 56.3 in the February 2009 survey, down from 61.2 in January and last February’s 70.8 and the cyclical peak of 96.9 set in January 2007. The Index of Consumer Expectations, a closely watched component of the Index of Leading Economic Indicators, was 50.5 in February, down from 57.8 in January and 62.4 last February, and substantially below the cyclical peak of 87.6 in January 2007. This was the largest sustained decline recorded during the past half century, falling by 42% from the cyclical peak.

Fast spreading unemployment was the primary concern of consumers. Sharp increases in joblessness were expected to result from an accelerating downturn. The February survey recorded a nearly universal belief that the economy would be in recession for at least another year and that continuous economic gains would not return for at least five years.

U.S. consumer confidence fell to its lowest in three months in February as sentiment grew increasingly gloomy over an economic downturn that most expected to last five more years, a survey showed on Friday. The Reuters University of Michigan Surveys of Consumers said its index reading of confidence for February tumbled to 56.2 from 61.2 in January.

That was the lowest since November, when U.S. stocks hit 11-year lows during one of the worst periods of the current financial crisis. A separate reading in the report showed consumer expectations fell to their lowest since May 1980. Confidence fell in early February as consumers came to the consensus that the economy would remain in recession throughout 2009. Moreover, nearly two-thirds anticipated that the downturn would last five more years.

The main index was well below economists' median expectation for a reading of 61.0 culled from 60 forecasts in a Reuters poll that ranged from 56.5 to 64.0.

Consumer confidence continued to hover near its half century low, showing no signs of significant change during the past six months. “Nearly all consumers anticipate the deepest and longest recession in the post-WWII era, but few consumers now expect the economy to sink into a 1930's style depression,” according to Richard Curtin, the Director of the Reuters/University of Michigan Surveys of Consumers. Job losses, declining work hours and smaller income gains were reported by consumers as well as falling home values and disappearing savings and pension accounts. Consumers have become defensive minded, protecting their future living standards through increased saving, even if it meant giving up some items, changing brand preferences or spending habits. “A recovery in consumer spending will require fiscal stimulus that effectively promotes job and income growth, monetary policies that restore credit flows, and actions that reestablish economic confidence,” Curtin said. Without each of these three legs in place, the recovery program will ultimately falter.

The Index of Consumer Sentiment was 61.2 in the January 2009 survey, just above the 60.1 in December but substantially below last January’s 78.4 and the cyclical peak of 96.9 set in January 2007. Presidential honeymoons have typically translated optimistic expectations for policy changes into early gains in consumer confidence, and the recent surveys indicate a small gain since the November low of 55.3. The Index of Consumer Expectations, a closely watched component of the Index of Leading Economic Indicators, was 57.8 in January, just ahead of the 54.0 in December and well below last January’s 68.1and the January 2007 cyclical peak of 87.6.

Consumers reported that lower prices provided some needed relief, but continued job losses as well as income declines have kept consumers pessimistic about their future economic prospects. The most significant change recorded in the December survey was the record plunge in inflation expectations. Not only did a record number of consumers report that retailers were currently offering deeply discounted prices, but consumers expected the overall rate of inflation to fall significantly in the future. One-in-four consumers expected outright declines in the overall price level, more than any time since the 1950's. Although most consumers view the recent price declines as due to the recessionary downturn in spending, even longer term inflation expectations have decreased. While most consumers expect a rebound in prices when the economy recovers, they now anticipate a somewhat lower overall inflation rate to prevail in the future. Given the depth of the recent declines in confidence, the relatively small December gain does not substantially change the negative outlook for spending during the year ahead. Total consumer spending is expected to decline by about 1% during 2009, followed by an unusually slow recovery in 2010. That declines in pension accounts and home values, uncertainty about future job and income prospects, and continued restrictions on the availability of credit have made consumers much more interested in restoring their savings and reserve funds.

The Index of Consumer Sentiment was 60.1 in the December 2008 survey, up from 55.3 in November but substantially below last December’s 75.5 and the cyclical peak of 96.9 set in January 2007. The Index of Consumer Expectations, a closely watched component of the Index of Leading Economic Indicators, was 54.0 in December, barely above the 53.9 in November and well below last December’s 65.6 or the January 2007 cyclical peak of 87.6. All of December’s gain was in evaluations of current economic conditions, mainly due to price discounting. The Current Conditions Index rose to 69.5 in December from 55.3 in November.

Consumers have expressed the most pessimistic economic outlook in the past quarter century just as the holiday shopping season gets underway. Consumer confidence fell in the last half of November due to mounting job losses, falling incomes, and the evaporation of household wealth. There have been only two surveys during the past half century that found consumers more pessimistic than now, in April and May of 1980—the all-time low was 51.7, a mere 3.6 Index-points below the current figure. Consumers were unanimous in their recognition that the economy was in recession, and nearly three-in-four expected the recession to deepen in the months ahead. The economic downturn was anticipated to prompt a stunning decline in the inflation rate: 39% of all consumers in November expected a zero inflation rate or outright deflation, up from just 5% six months ago. Even the plunge in gas prices was unable to overcome consumers’ heightened uncertainty about future job and income prospects. Although their reluctance to make discretionary purchases is primarily due to job and income uncertainty, consumers’ desire to increase their saving and reserve funds as well as stringent limitation of the availability of credit will also curtail spending. Overall, the data indicate the bleakest holiday spending season since 1980, with declines in consumer spending lasting until the 4th quarter of 2009. Total consumption expenditures are expected to fall by about -1.0% in 2009.

Few consumers expect the recession to end anytime soon as just 14% of all consumers in November expected the return of good times financially in the economy during the year ahead. When asked to identify what economic news they had heard, half of all consumers reported rising unemployment, up from one-in-three in October and one-in-four last November. An increase in the unemployment rate was expected by 69% of all consumers in November, a level that has only been exceeded in one prior survey—72% in 1980. The data indicate that consumers now expect the unemployment rate to be 8.5% by yearend 2009. Given these dismal job expectations, it is easy to understand their planned steep cutbacks in discretionary spending.

The October survey recorded the largest monthly decline in consumer confidence in the history of the surveys. “Consumer confidence had already declined by mid 2008 by more than prior to any past recession and the steep October loss indicates that accelerated cutbacks in spending can be expected during the months ahead,” according to Richard Curtin, the Director of the Reuters/University of Michigan Surveys of Consumers. Overall, the data indicate that this will be the bleakest holiday spending season since 1980. “Consumers held the least favorable assessments of their finances in more than a half century and viewed their job prospects more negatively than at any other time since the end of 1980,” according to Curtin.

The data indicate that a long and deep recession is likely to occur, with spending expected to decline through most of 2009. Consumers anticipated an unemployment rate reaching 8% by the end of 2009. Total real personal consumption expenditures are expected to fall by -0.50% to -0.75% in 2009 compared with 2008, followed by unusually slow paced recovery in 2010.

The Index of Consumer Sentiment was 57.6 in the October 2008 survey, a record 12.7 points below the 70.3 in September, and 23.3 points below last October’s 80.9. Since the cyclical peak was set in January 2007, the Sentiment Index has declined by 41%, the largest peak to trough decline in history. The Index of Consumer Expectations, a closely watched component of the Index of Leading Economic Indicators that is noted for its ability to foreshadow recessions, was 57.0 in October, down from 67.2 in September and 70.1 last October. The Expectations Index has decline by 35% since its January 2007 peak.

Consumer confidence suffered its steepest monthly drop on record in October, a survey showed on Friday, as the worst financial crisis since the Great Depression sent shocks waves through the economy.The Reuters/University of Michigan Surveys of Consumers said its index of confidence plummeted to 57.5 in October from 70.3 in September.

"Consumer confidence in early October registered its largest monthly decline in the history of the surveys," the report said.The index is now at its lowest since June this year. The report said there have only been four surveys that posted monthly declines of 10 index points or more.