April 28, 2006
Consumer confidence remains steady despite surge in gas prices
ANN ARBOR, Mich.—Despite a 30 percent surge in gas prices since the start of the year, consumer confidence has remained largely unchanged for the past three months. "Although higher income and employment levels have offset the impact of rising gas prices on consumer confidence, there is a considerable degree of dread about future prospects among middle and lower income households," according to Richard Curtin, the Director of the University of Michigan’s Surveys of Consumers. The underlying strength of the economy is amply demonstrated by the fact gas prices are nearly 70 cents a gallon more than a year ago yet consumer confidence is as positive as a year ago.
The Index of Consumer Sentiment was 87.4 in the April 2006 survey, between the 88.9 recorded in March and the 86.7 recorded in February, and nearly identical with last April’s 87.7. The Index of Consumer Expectations, a closely watched component of the Index of Leading Economic Indicators, fell to 73.4 in the April 2006 survey, down from 76.0 in March and 77.0 in April of 2005. The Current Economic Conditions Index was 109.2 in April, nearly equal to the 109.1 in March, and above the 104.4 recorded last April.
Surging gas prices were expected to only have a modest impact on the overall rate of inflation during the year ahead. Consumers anticipated a year-ahead inflation rate of 3.3 percent in April, which was well below the peak of 4.6 percent recorded following Hurricane Katrina, and equal to last April’s level (when gas prices first exceeded $2.25, and were about $.70 below current levels).
"There is now a large gap between upper and lower income households in their assessments of changes in their financial situation," Curtin noted. Income gains were reported twice as frequently among households with incomes over $50,000, while complaints about high gas prices were reported much more frequently by lower income households. "It was surprising that the frequency of complaints about high gas prices have not changed during the past few months, and were less frequent than six months ago among both upper and lower income households," according to Curtin.
Consumers expected the pace of economic growth would slow in the second half of the year and into 2007. "Consumers anticipated that higher interest rates will ultimately slow the overall pace of economic growth," Curtin said. The largest change in consumer expectations since the start of 2006 has been declines in prospects for the national economy.
Although the surge in gas prices had a chilling impact on vehicle buying plans, the weakening was much less than last April when gas prices first reached $2.25 or following Katrina when gas prices were comparable to now. Home buying attitudes were unchanged from last month as concerns about rising mortgage rates were offset by declines in home prices. "Consumers in the April survey voiced the fewest complaints about high home prices during the past nine months," according to Curtin.