Economic Outlook: Job and Income Growth Overwhelm Gas Hikes

Consumer confidence edged upward in March as more favorable income and job trends offset concerns with rising gas prices, according to Richard T. Curtin, director, Thomson Reuters/University of Michigan Surveys of Consumers.

Only among lower income households did higher gas prices marginally overwhelm increases in incomes and jobs, the March Thomson Reuters report says.

"More households reported an improved financial situation than anytime in the past four years and more consumers than ever before in the long history of the surveys reported hearing of improved employment conditions. Overall, the data indicate inflation-adjusted personal consumption expenditures can be expected to grow by 2.3 percent in 2012, " the survey says.

More households reported that their financial situation had improved than anytime since the March 2008 survey. "When asked to explain in their own words how their finances had changed, more families cited income gains and fewer mentioned income declines than anytime in nearly four years," the Thomson Reuters survey says.

"These recent gains did not prompt optimistic expectations as just one-in-four anticipated that their finances improve during the year ahead, which was un-changed from a month and year ago. Expected increases in inflation held down more optimistic expectations."

The highest proportion of consumers in the history of the surveys spontaneously reported hearing about employment gains, the survey notes. "Just 19 percent expected the jobless rate to increase in the year ahead, the lowest level in more than a decade. More households thought the economy had improved in March than anytime in the last seven years, but they still remained cautious about year-ahead prospects, with just one-in-three anticipating good economic times," the survey says.

The Sentiment Index rose to 76.2 in the March 2012 survey, just ahead of the 75.3 in February, and substantially above last March’s 67.5. While the Sentiment Index has remained largely unchanged in the first three months of 2012, the average for the 1st quarter of 2012 was the highest since the 4th quarter of 2007, recovering half of its total cyclical loss.

The Expectations Index fell slightly to 69.8 in March from 70.3 in February, while the Current Conditions Index rose to 86.0 in March, up from 83.0 in February, the survey says.

"Although consumers are not yet optimistic about future economic prospects, pessimism has recently faded at a rapid pace. Perhaps too rapidly, as expected job and income gains may be unrealistically high for the economy to meet," Curtin says.

"Typically those least affected by the downturn can create enough activity to maintain upward economic momentum. This time it will be more challenging as housing gains can be expected to remain sluggish as record numbers reported they would lose money if they sold their home to purchase another, and upper income households may hesitate in the months ahead due to uncertainties about next year’s taxes," Curtin says.

The Survey of Consumers is a rotating panel survey based on a nationally representative sample.

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