ANN ARBOR, Mich.—Consumer confidence improved substantially in September due to more favorable prospects for the national economy, according to University of Michigan economist Richard Curtin, director of the Thomson Reuters/University of Michigan Surveys of Consumers.
The Surveys, conducted by the U-M Institute for Social Research, have been monitoring consumer attitudes and expectations for more than 60 years.
Consumers expect the economy to create more jobs in the year ahead, according to Curtin. The overall rise in confidence was aided by higher stock prices as well as rising home values.
However, the majority of consumers still anticipate very small wage gains and expect somewhat larger price increases during the year ahead, due largely to rising food prices. This means that half of all households anticipate declining living standards as their incomes fail to keep pace with inflation.
“The September improvement in confidence was due to more favorable prospects for the economy and for jobs during the year ahead," said Curtin. "In addition, consumers reported some small gains in their financial situation. The improvement was due to a reduction in their debt levels and an increase in the value of their assets, primarily because of rising stock prices and home values.
Nonetheless, consumers anticipate a rocky economic road ahead—small wage increases, rising food prices, slowly declining joblessness, higher taxes and an overall economy that will not expand continuously but suffer some setbacks over the next several years.”
Positive Home Buying Plans
Low mortgage rates have reinvigorated home buying, Curtin said. Just as importantly, people's reluctance to sell their current home to buy another home also has receded. Virtually every homebuyer cites low mortgage rates and low prices. While those same low prices are seen as a drawback for home sellers, that disadvantage has shrunk to its lowest level in the past five years. Although indications for home sales are positive, the data suggest that the recovery in the housing market will be slow and halting.
Positive Economic Growth Expected
Curtin said that twice as many consumers now expect the economy to continue to expand as anticipate renewed economic declines. In the September survey, more consumers spontaneously reported hearing news about job gains and expected continued job gains during the year ahead. When specifically asked about prospective changes in the unemployment rate, the highest number of consumers in the past six months expect declines in unemployment.
Consumer Sentiment Index
The Sentiment Index was 78.3 in September 2012, up from 74.3 in August, and well above last August's 59.5. The outsized year-to-year gain of 31.6 percent reflects a rebound from the disastrous lows during the debt ceiling debate. More important were the monthly gains, Curtin said, especially the gain in the Expectations Index, which rose to 73.5 in September from 65.1 in August. In contrast, the Current Conditions Index slipped to 85.7 in September from 88.7 in August, but remained above the 82.7 recorded in July 2012.
About the Survey
The Surveys of Consumers is a rotating panel survey based on a nationally representative sample that gives each household in the coterminous U.S. an equal probability of being selected. Interviews are conducted throughout the month by telephone. The minimum monthly change required for significance at the 95% level in the Sentiment Index is 4.8 points; for Current and Expectations Indices, the minimum is 6.0 points.
Established in 1949, the University of Michigan Institute for Social Research is the world's largest academic social science survey and research organization, and a world leader in developing and applying social science methodology, and in educating researchers and students from around the world. ISR conducts some of the most widely cited studies in the nation, including the Thomson Reuters/University of Michigan Surveys of Consumers, the American National Election Studies, the Monitoring the Future Study, the Panel Study of Income Dynamics, the Health and Retirement Study, the Columbia County Longitudinal Study and the National Survey of Black Americans. ISR researchers also collaborate with social scientists in more than 60 nations on the World Values Surveys and other projects, and the institute has established formal ties with universities in Poland, China and South Africa. ISR is also home to the Inter-University Consortium for Political and Social Research, the world's largest digital social science data archive. For more information, visit the ISR website at www.isr.umich.edu.