Research >> Economics
University of Michigan Consumer Confidence declined slightly
|
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.
Posted: April 30, 2010 Friday 10:00 AM