Record-income gains reported by consumers

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ANN ARBOR—The University of Michigan’s Index of Consumer Sentiment has moved sideways, recording only small monthly variations for more than two years.

The Sentiment Index has averaged 97.2 during the past 28 months—identical to the April 2019 reading—and has remained between 95.0 and 99.0 for 21 of those months. Variations within ±2.0 percentage points in the Sentiment Index meant that most of the monthly changes were statistically insignificant.

Confidence has been maintained at high levels due to low rates of unemployment and inflation as well as renewed income growth, said economist Richard Curtin, director of the U-M Surveys of Consumers. Although consumers now anticipate a slower pace of economic growth, they expect those favorable conditions to persist during the year ahead, he said.

“Positive views of current buying conditions are now dominated by people’s favorable income prospects,” Curtin said. “The highest number of consumers in the past half-century mentioned favorable income prospects when asked to explain their views about making discretionary expenditures.

“Nonetheless, consumers displayed a recognition that favorable economic conditions will not last forever and so remained cautious spenders. To be sure, declines in interest rates have helped to partially offset the falloff in favorable perceptions of prices, especially for home purchases. Overall, the data indicate that inflation-adjusted personal consumption expenditures will grow by 2.5% in 2019.”

Record Strength in Personal Finances

Recently improved finances were cited by 53% of all consumers in April, equal to the average level recorded during the past year, which is the highest average since 1999. Income gains remained widespread and reports of increases in net household wealth rose among middle and upper income households.

When asked about their financial prospects for the year ahead, 44% anticipated improvements compared with just 8% who expected worsening finances. This was the best overall reading since 2004. When asked about longer term financial prospects, 60% reported in the April survey that they expected to be better off financially over the next five years.

Slower Growth But Still Favorable Job Outlook

Consumers expected the pace of economic growth to slow in the year ahead, although most still anticipated that good times financially would continue in the economy as a whole, Curtin said.

Importantly, the expected slowdown in economic growth had little impact on unemployment expectations. Half of all consumers anticipated that the unemployment rate would remain unchanged at its current low, while the other half were slightly tilted toward expecting further small declines rather than increases during the year ahead.

Consumer Sentiment Index

The Consumer Sentiment Index was 97.2 in the April 2019 survey, insignificantly below March’s 98.4 and last April’s 98.8. The Expectations Index was 87.4, insignificantly below last month’s 88.8 and last April’s 88.4. The Current Conditions Index fell slightly to 112.3 from last month’s 113.3 and last year’s 114.9.

About the Surveys

The Surveys of Consumers is a rotating panel survey based on a nationally representative sample that gives each household in the coterminous U.S. an equal probability of being selected. Interviews are conducted throughout the month by telephone. The minimum monthly change required for significance at the 95-percent level in the Sentiment Index is 4.8 points; for Current and Expectations Index the minimum is 6 points.

Surveys of Consumers
U-M Institute for Social Research