Jan. 05, 2004
Consumers are optimistic about job growth in 2004
ANN ARBOR, Mich.—The highest proportion of consumers in twenty years reported hearing of favorable developments in the economy in the December 2003 survey, according to Richard Curtin, the Director of the University of Michigan’s Surveys of Consumers. “Consumers expected a stronger economy to create more jobs during the year ahead,” Curtin said. Indeed, consumers held the most optimistic expectations for job growth in two decades in the December 2003 survey.
The Index of Consumer Sentiment was 92.6 in the December 2003 survey, just below the 93.7 in November, but well above the 86.7 recorded last December. Overall, the Sentiment Index has posted a cumulative gain of 19% since its low of 77.6 recorded in March 2003. The Expectations Index, a closely watched component of the Index of Leading Economic Indicators, rose to 89.8 in the December survey, up from 88.1 in November and 80.8 in December of 2002. The Expectations Index has posted a cumulative gain of 29% since its low of 69.6 in March 2003.
High expectations for economic growth are widespread. “The highest proportion of consumers in two decades anticipate a falling unemployment rate in 2004,” according to Curtin. The survey data indicate that consumers expect the unemployment rate to fall to 5.5% by mid 2004. The pace of growth in the overall economy is anticipated by consumers to be at least 4.5% during 2004.
Given the widespread signs of economic gains, consumers have shown a growing impatience with the slow pace of improvement in their own financial situation. “Given their heightened concerns about their financial progress, consumers have renewed their emphasis on discounts in their purchase plans. Unfortunately, retailers viewed the increased optimism as a reason to cut discounts, and as a result caused consumers to reduce their purchases,” according to Curtin.
The decline in buying plans was largest for purchases of furniture, appliances, home electronics, and other large household durables. “Smaller than anticipated discounts as well as greater concerns about their financial situation caused consumers to become more cautious spenders,” said Curtin.
The majority of consumers expect the Fed to raise interest rates during 2004. The data indicate that rising mortgage rates will end the gains in home sales, although the overall sales levels are expected to remain quite favorable. The continued use of discounts by vehicle manufacturers will result in slightly higher vehicle sales in 2004 than in 2003.