Feb. 27, 2004
Concerns heighten over slow pace of job growth
ANN ARBOR, Mich.—Consumers were much less optimistic about prospects for the economy in the February survey largely due to heightened concerns about the slow pace of job growth, according to Richard Curtin, the Director of the University of Michigan’s Surveys of Consumers.
The recent shift in expectations was more rapid and larger than typical. Indeed, larger monthly changes were recorded in less than six monthly surveys over the past quarter-century. "The sharp and sudden swing in consumer expectations was due to mounting fears among consumers that weak job growth and global job outsourcing may pose a threat to their future living standards," Curtin said. Despite these concerns, the current level of consumer confidence still remains sufficiently high to support growth in overall consumer spending of about 3.5% during the year ahead.
The Index of Consumer Sentiment was 94.4 in the February 2004 survey, well above the 79.9 recorded a year ago in February 2003. During the past few months, however, the Sentiment Index first rose by 11.2 Index-points in January from December, and then fell by 9.4 points in February. The Expectations Index, a closely watched component of the Index of Leading Economic Indicators, was 88.5 in the February 2004 survey, up from 69.9 a year ago. The Expectations Index also changed by a considerable amount in the past few months, first rising by 10.3 Index-points in January and then falling by 11.6 points in the February survey.
"Persistently weak job growth coupled with higher productivity and global job outsourcing has made consumers more uncertain about the timing and extent of future job growth," according to Curtin. The largest change in consumer expectations can be traced to sharp declines in the number of consumers that reported hearing of favorable economic developments in February, particularly with respect to job prospects. "Consumers more frequently expected the unemployment rate to increase during 2004 in the February survey whereas in January they more frequently expected a declining unemployment rate," Curtin said. The presidential primaries have focused consumers concerns on weak job growth and global job outsourcing. "These economic apprehensions have created an unusually large divergence in confidence among income and age subgroups, with lower income and older consumers expressing the most concerns," Curtin added.
Despite these heightened concerns, the majority of consumers still expect good times in the economy as a whole during 2004, and the economic expectations of consumers remain well above the lows recorded in early 2003. "If the economy produced jobs at a more rapid rate in the months ahead, these apprehensions of consumers could quickly fade," Curtin added.
Buying plans for vehicles and large household durables fell slightly in the February survey. Fewer consumers judged the current discounts on new vehicles as attractive as in the past, and fewer consumers thought that the prices of appliances and home electronics were as appealingly low as in 2003.