ANN ARBOR—The Michigan survey provides no evidence of a steep decline in consumer confidence nor that confidence had even weakened in July, according to Richard Curtin, the Director of the University of Michigan’s Surveys of Consumers.

“Although the improvement recorded in July was quite small, the gain reflected an easing in pessimism about future job prospects among consumers,” Curtin said. The recently announced increase in the unemployment rate was widely anticipated by consumers, and it did not heighten consumers’ fears about future increases. “While consumers still anticipate some further increases in the unemployment rate in the months ahead, concerns about job losses were at their highest levels in March and have eased over the past three months,” according to Curtin.

The Index of Consumer Sentiment was 90.9 in the July 2003 survey, up from 89.7 in June and well above the 77.6 recorded in March. Although the Index of Consumer Expectations fell to 83.7 in July from 86.4 in June, the Expectations Index remained well above the 69.6 recorded in March. The recent falloff was hardly surprising given the ten-year record surge of 31 percent from the March low that was recorded two months ago. Of much greater importance, the Expectations Index, a closely watched component of the Index of Leading Economic Indicators, was still 20 percent higher in July than in March.

“The sustained gains in overall confidence indicate that the pace of consumer spending in the second half of 2003 will be nearly twice the rate recorded during the first half,” noted Curtin. The lack of improvement in the past few months, however, indicates that consumers will not increase the pace of their spending during 2004 above the improved year-end 2003 levels.

Low inflation and low interest rates prompted consumers to judge their current finances and buying conditions more favorably. Consumers expected a year-ahead inflation rate of 1.7 percent, the lowest expected inflation rate in more than a quarter century. “Most consumers viewed the continued disinflation as an important source of improvement in their living standards,” said Curtin. In the July survey, 40 percent of all consumers reported that their financial situation had improved, up from 33 percent in May. Buying attitudes improved in the July survey due to the availability of discounted prices and low interest rates. “While rising mortgage rates have cooled home refinancing, consumers still view current interest rates as attractively low for purchases of homes, vehicles, furniture, appliances, and home electronics,” according to Curtin.

The fewest consumers in nearly three years reported hearing news of recent unfavorable economic developments in the July survey. “Although consumers expected the economy to improve rather than to worsen by a two-to-one margin in July, they anticipated a slow and uneven pace of growth in the years ahead,” noted Curtin. Indeed, consumers judged longer term prospects for the economy less favorably than the conditions they anticipate for the year ahead. “While pessimism among consumers has receded, optimism will not prevail until the causes of these apprehensions about longer term economic prospects are resolved,” Curtin said.  

of Consumers Internet: www.umich.edu/~umsurvey