Consumers fear fewer jobs created by slower pace of economic growth
ANN ARBOR, Mich.—Confidence posted a slight decline in February as consumers reported less favorable financial prospects for the year ahead. “The small decline recorded in February hardly changed the positive level of confidence that still prevails,” according to Richard Curtin, the Director of the University of Michiganís Surveys of Consumers in the Institute for Social Research.
The data clearly indicate that consumers anticipate that the pace of economic growth will moderate during the year ahead. “Employment remains the top concern of consumers, and in the recent surveys there have been an increasing number of consumers who expect the economy to produce fewer additional jobs than they expected a few months ago,” noted Curtin.
In contrast, consumers judged current economic conditions as the best compared to any other time during the past four years. Overall, the survey data indicate that real consumer spending should expand at a 3 percent annual rate of growth during 2005.
The Index of Consumer Sentiment was 94.1 in the February 2005 survey, just below the 95.5 in January, and nearly identical to the 94.4 recorded last February. The Index of Consumer Expectations, a closely watched component of the Index of Leading Economic Indicators, fell to 84.4 in the February 2005 survey, down from 85.7 in January and 88.5 in February 2004. The Current Economic Conditions Index was 109.2 in February, just below the cyclical peak of 110.9 in January, and well above the 103.6 recorded last February.
The February survey recorded the highest proportion of households in four years to report recent gains in their financial situation as well as the lowest proportion of households that expected financial gains during the year ahead. “Half of all households reported financial gains in February, the highest in four years, while just one-third of all households expected their financial situation to improve, the smallest proportion in five year,” Curtin said. Very few consumers expect their finances to actually worsen, while the highest proportion in ten years anticipated an unchanged financial situation after taking into account expected changes in incomes and prices.
The majority of consumers in February thought that the national economy had recently improved, and the majority of consumers expected good times financially in the economy during the year ahead. “What consumers found troubling was that they expected the rate of economic growth to slow and to result in a subdued pace of new job creation,” according to Curtin. Two-thirds of all consumers do not expect any additional declines in the national unemployment rate during the year ahead.
Rising interest rates were anticipated by three-quarters of all consumers in February, a level that was nearly equal to the all-time peak of 85 percent recorded last May, the month prior to the first increase. “The February survey marked the tenth consecutive month that three-quarters of all consumers anticipated increases in interest rates, an outlook that has remained unchanged despite the six hikes already announced by the Fed,” Curtin noted.
Buying attitudes toward homes, vehicles, and large household durables all declined slightly in February. Rather than due to concerns about rising interest rates, consumers pointed toward high prices as the reason for their more cautious spending plans. “Although unfavorable reactions to high home prices grew in February, the primary driver of home buying continued to be very favorable perceptions of mortgage rates,” Curtin said. When asked about vehicle buying plans, consumers held less favorable views about the size of price discounts offered by vehicle manufacturers.
Contact: Richard T. Curtin