Consumers cite concerns about rising oil prices and slowing growth
ANN ARBOR, Mich.—Consumer confidence fell slightly in September due to rising oil prices and greater concerns about the sluggish pace of growth in employment. “The September loss in confidence was quite small, reflecting a continuation of the sideward movement that has dominated since the start of the year rather than indicating an emerging downturn,” according to Richard Curtin, the Director of the University of Michigan’s Surveys of Consumers. The overall level of the Sentiment Index in the September survey was nearly identical to its average during the past eight months.
The Index of Consumer Sentiment was 94.2 in the September 2004 survey, slightly below the 95.9 in August, but well above the 87.7 recorded last September. The Expectations Index, a closely watched component of the Index of Leading Economic Indicators, was 88.0 in September, nearly equal to the 88.2 in August , and above the 80.8 recorded in September of 2003. Compared with a year ago, the Sentiment Index posted a healthy 7.4% gain, and the Expectations Index was up by 8.9%.
Most of the September loss was in consumers’ evaluations of their personal financial situation. “High gas prices, sluggish job growth, and smaller expected wage gains were reported by consumers as reasons for their financial setbacks,” according to Curtin. Households with incomes above the median were more likely to report these financial reversals in September, although these households still assessed their finances more favorably than households with lower incomes.
The news reaching consumers about recent economic developments turned decidedly negative in the September survey. “Consumers reported hearing about job losses more than twice as frequently as job gains in September, exactly the opposite of what they reported just two months ago,” Curtin noted. This turnabout caused consumers to no longer anticipate any further reductions in the unemployment rate during the year ahead. “Consumers were more likely to expect the unemployment rate to remain unchanged at its current level during the year ahead due to an anticipated slowdown in the pace of economic growth in early 2005,” Curtin said.
Consumers were more confident that the expansion would persist without interruption during the next five years, even as they anticipated a slower overall pace of growth. “Consumers were still twice as likely to expect economic conditions to improve rather than worsen during the year ahead,” according to Curtin. Despite the repeated increases in interest rates by the Fed, consumers judged current mortgage rates somewhat more favorably in the September survey. “Home buying plans rebounded in September as consumers saw a advantage in purchasing homes at unexpectedly low mortgage rates,” Curtin said.
Vehicle buying attitudes also improved as two-in-three consumers cited the appeal of discounted prices and interest rates. “Domestic vehicle buyers have been emboldened by their ability to exact deeply discounted prices and interest rates from vehicle manufacturers,” Curtin noted.