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Surge in Expectations Drives Gain in US Consumer Sentiment

“The precautionary mood of consumers had required price discounts and low-interest rates to offset their economic uncertainties, now consumers are more likely to base their spending decisions on a renewed confidence in their jobs and incomes,” said Richard Curtin, director of the University of Michigan consumer survey.

Consumer sentiment climbed in August to a seven-month high as a measure of the outlook for the U.S. economy and personal finances registered the largest one-month advance since the end of 2011, according to University of Michigan survey data released on August 18.

Looking at specific sections of the report, the Sentiment index rose to 97.6 from 93.4 in July. The Expectations measure jumped to 89 from 80.5 the prior month, a 8.5 point increase in consumer expectations and the biggest since December 2011.

And the Current conditions gauge, which measures Americans’ perceptions of their finances, fell to 111 from 113.4.

“The precautionary mood of consumers had required price discounts and low-interest rates to offset their economic uncertainties, now consumers are more likely to base their spending decisions on a renewed confidence in their jobs and incomes,” Richard Curtin, director of the University of Michigan consumer survey, said in a statement. “To be sure, attractive prices and interest rates are still required, but the basic motivation has begun to shift toward a more confident buyer.”

Consumers saw inflation rate in the next year at 2.6%, the same as in the prior three months.  Inflation rate over next five to 10 years is expected to be 2.5% after measuring 2.6 % in July.

And the Gauge of economic outlook over next year rose to 123, which is highest since June 2015.

Half of all consumers in each of the last three Michigan surveys reported that their finances had recently improved, the best reading since 2000, the report showed. Americans were also upbeat about their financial prospects in the year ahead.

Stronger household views about their financial well-being probably show consumer spending will continue to expand and power the economy. A robust labor market remains a primary driver behind the improving attitudes about the economy. A favorable outlook for the economy was anticipated by 55% of all respondents, the highest share in two years. The caveat is that most Republican households expected gains, while most Democrats forecast declines.

 The report showed an interesting change in how people are approaching their spending decisions. Confidence in the job market and incomes are playing a greater role, rather than low prices and borrowing costs.

Consumer sentiment has recovered following a two-month slide as President Donald Trump’s legislative agenda ran into several roadblocks. The partisan divide on economic outcomes has continued to increase as a series of foreign and domestic policy difficulties has refocused attention from plans for infrastructure spending and tax reform.

 By Daniel Flatley

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