Surge in optimism due to expected job growth in 2004
ANN ARBOR, Mich. —Consumer confidence surged to its highest level in more than three years by recording its third largest monthly gain in January, according to Richard Curtin, the Director of the University of Michigan’s Surveys of Consumers.
“The surge in consumer confidence was due to more favorable developments in the economy during the past few months and to the expectation of renewed growth in jobs and wages during the year ahead,” said Curtin. The expected growth in employment was recorded at the same time that the election polls indicated that the lack of jobs remain an important issue in the recent Democratic primaries. “These two findings do not conflict as consumers can expect cyclical improvement in employment and still be apprehensive about the long term loss of jobs due to global competition,” noted Curtin.
The Index of Consumer Sentiment was 103.8 in the January 2004 survey, up from 92.6 in the December 2003 and 82.4 in January 2003. Overall, the Sentiment Index has posted a cumulative year-to-year gain of 26%. The Expectations Index, a closely watched component of the Index of Leading Economic Indicators, rose to 100.1 in January 2004, up from 89.8 in the December survey and 72.8 in January of 2003. The Expectations Index has posted an overall year-to-year gain of 37%.
Consumers more frequently reported hearing news of positive economic developments during the past three months than at any other time during the past twenty years. Two-thirds of all consumers expected good times in the economy as a whole during 2004, up from half of all consumers three months ago, and just one-in-four consumers in early 2003. Moreover, the majority of consumers expect the economic expansion to continue without interruption over the next five years. “Consumers expected the continued economic strength to support renewed job growth, with more consumers anticipating a declining unemployment rate than at any other time during the past twenty years,” according to Curtin.
Buying attitudes toward furniture, appliances, home electronics, and other household durables rose to their highest level in three years in the January 2004 survey. Unlike home and vehicle buying attitudes, which have hovered around peak levels for several years, buying attitudes toward household durables have now recovered all of their decline since 2000.
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 for new and existing homes are expected to remain quite favorable. The continued reliance on deep discounts by vehicle manufacturers is expected to generate slightly higher vehicle sales in 2004 than in 2003.