ANN ARBOR—Rising household wealth rather than resurgent jobs and wages was mainly responsible for the recent gains in consumer confidence, according to University of Michigan economist Richard Curtin, director of the Thomson Reuters/University of Michigan Surveys of Consumers.
Conducted by the U-M Institute for Social Research (ISR) since 1946, the Surveys monitor consumer attitudes and expectations.
The June strength was concentrated among households with income above $75,000, with their confidence rising to its highest level since mid 2007. In contrast to the healthy gains in stocks and home values enjoyed by upper-income households, lower-income households were more likely to report income declines and no increases in their household wealth. The June falloff in confidence among lower-income households was not large, according to Curtin, and more importantly, all income groups anticipated continued modest gains in the overall economy as well as continued slow declines in the national unemployment rate.
“Consumers now believe the recovery has achieved an upward momentum that will not be easily reversed," said Curtin. "To be sure, few consumers expect the economy to post robust gains or think the unemployment rate will drastically shrink during the year ahead. Nonetheless, consumers anticipate continued slow economic progress. Gains in spending during the balance of 2013 can be expected to be more heavily concentrated than usual among upper-income households, with the housing market serving as the bellwether industry. These prospects reflect a new type of economic revival, sparked by increases in wealth rather than by gains in jobs and wages.”
Personal Finances: Differential Prospects
Younger and upper-income households were more likely to report income gains in the June survey, while older and lower-income households were more likely to cite lower incomes and falling living standards. Only consumers under age 45 anticipated income gains that were larger than the expected rate of inflation. Overall, just 12 percent of all consumers expected their incomes to go up faster than next year's relatively low rate of inflation.
Favorable Home Buying Plans
Plans for home purchases continued to improve in June. The fewest consumers in ten years thought it was a bad time to buy a home and the most consumers since 2006 thought home selling conditions were favorable. The highest proportion of consumers since 2007 reported rising home values, and the highest proportion of homeowners expected additional increases in their home's value during the year ahead. Just under one-in-ten homeowners said that they would lose money if they sold their home today, half the level recorded a year ago.
Consumer Sentiment Index
The Sentiment Index was 84.1 in the June 2013 survey, barely below the 84.5 in May and well above the 73.2 recorded last June. Consumer Sentiment was higher in the past two months than at anytime since 2007. The Expectations Index rose to 77.8 in June from 75.8 in the May survey and last June's 67.8. The Current Conditions Index was 93.8 in June, between May's 98.0 and last June's 81.5.
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-percent level in the Sentiment Index is 4.8 points; for Current and Expectations Index the minimum is 6.0 points. For more information, visit the Surveys of Consumers website at http://press.sca.isr.umich.edu.
Established in 1949, the University of Michigan Institute for Social Research (ISR) 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 (ICPSR), the world's largest digital social science data archive. Visit the ISR Web site at http://www.isr.umich.edu for more information.