Consumers Wary But Confidence Up

graphConsumer confidence has rebounded to near its highest level since 2007, reports Richard Curtin, director, chief economist, Reuters/University of Michigan Surveys of Consumers.

"The most important issue is whether consumers will show greater resistance to the backslides that have repeatedly occurred in the past few years. Resilience among consumers is dependent on positive long term economic expectations," Curtin said.

"While near term expectations have improved substantially, longer-term expectations for personal finances as well as the overall economy have remained unchanged from a year ago. Hopefully, as the pace of economic growth springs ahead in the coming months, the main beneficiary will be an improvement in long term economic expectations for personal finances as well as the overall economy," Curtin said.

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The April level of consumer confidence was just one index-point below the post-recession peak, the April report says. "The recent gain was due to much more positive assessment of consumers’ current financial situation as well as renewed optimism about the outlook for the national economy during the year ahead."

"Importantly, consumers were slightly more optimistic about future job gains, although most consumers expect only minor improvements in the national unemployment rate during the year ahead. The main attraction of home buying conditions has shifted in the past few months toward a greater reliance on low mortgage rates and less emphasis on low prices. This has made the continued expansion of home purchases more responsive to changes in the availability of mortgage credit to potential home buyers," the current report concludes.

Highlights of the report, include:

  • Personal Finances: The current finances of consumers have improved, but those gains did not make consumers any more optimistic about the future. The proportion who reported worsening finances dropped to 28% in April from 37% one month and one year ago; this was the lowest level since the April 2007 survey. Unfortunately, the strong gains did not encourage more optimism for the year ahead, expressed by 32% in April, down from 33% last month.
  • Buying Plans: Buying attitudes toward durables, vehicles and homes improved among households in the top third of the in- come distribution, but recorded slight declines among lower income households. The availability of price discounts on household durables were mentioned by just 31% in the April survey, the lowest proportion since October 2008, with the decline primarily recorded among lower income households.
  • Consumer Sentiment Index: The Sentiment Index was 84.1 in the April 2014 survey, up from 80.0 in March and 76.4 in last April’s survey. There have only been two months that recorded a higher level since 2007: 85.1 in July 2013 and 84.5 in May 2013. Compared with a year ago, nearly equal gains were recorded by the Current Conditions Index (98.7 in April, up 9.8%).

Visit www.src.isr.umich.edu

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