ANN ARBOR—Although consumers had anticipated an improving economy, the recently announced 3rd quarter surge in GDP was stronger than consumers had expected according to Richard Curtin, the Director of the University of Michigan’s Surveys of Consumers. “The central issue for consumers is when they can anticipate sustained gains in jobs and wages from the revitalized economy,” Curtin explained. In the October survey consumers expected only small gains in wages and employment opportunities. “If wage and job gains quicken in the months ahead, we could anticipate a more complete restoration of consumer confidence during the year ahead,” said Curtin. Even if jobs remain scarce, the current level of consumer confidence is sufficient to support continued strong gains in spending, although well below the extraordinary 3rd quarter pace of 6.6%.

The Index of Consumer Sentiment was 89.6 in October, up from 87.7 in September and 15.5% higher than at the low recorded in March 2003. The Index of Consumer Expectations, a closely watched component of the Index of Leading Economic Indicators, was 83.0 in October, up from 80.8 in September and 19.3% higher than at its March 2003 low.

For the sixth consecutive month, twice as many consumers in the October survey expected the economy to improve rather than to worsen. “Although the year-ahead outlook for the national economy has improved considerably, consumers were not as optimistic about longer term prospects,” noted Curtin. Apprehensions about longer term prospects for the economy were related to their concerns about current economic polices.

Although the slide in confidence in government economic policies was halted in October, twice as many consumers still rated current economic policies unfavorably as rated them favorably.

Although consumers do not expect any further increases in unemployment, they are still uncertain about when they can actually expect renewed and sustained growth in employment. “The news reaching consumers about job losses has declined substantially, with the October survey recording the fewest reports of new job losses in three years. Unfortunately, there has been no comparable increase in reported gains in employment,” according to Curtin. While unemployment is always the last to improve, consumers’ economic expectations improve as soon as they confidently expect expanded job opportunities will be forthcoming. “In an earlier era, workers were quickly recalled to the same job by the same employer, but in today’s economy this process takes longer as it often means that workers need new skills for new jobs at different employers,” Curtin noted.

The current financial situation of consumers has improved. “Consumers voiced more positive assessments of their current finances in October due to income gains, tax cuts, and gains in the value of their assets,” Curtin said. When asked about their future financial prospects, however, consumers were somewhat less optimistic as they anticipated smaller income gains during the year ahead. Consumers expected a lower inflation rate during the year ahead which partially offset their concerns about smaller income gains.

Discounted prices and low interest rates have pushed vehicle and home buying attitudes back toward alltime record levels. “Consumers more frequently cited low mortgage rates in the October survey and were less fearful about potential mortgage rate increases during the year ahead,” said Curtin. Vehicle buying attitudes improved due to both discounted prices as well as low interest rates on new vehicle loans. “Price discounts on new vehicles were cited more frequently in the October survey than during the past ten years,” noted Curtin.

Related Links:

• www.umich.edu/~umsurvey