ANN ARBOR—The majority of consumers in the November 2003 survey reported hearing of favorable developments in the economy for the first time in ten years, according to Richard Curtin, the Director of the University of Michigan’s Surveys of Consumers. “Consumer confidence reached its highest level in eighteen months due to the expectations that a stronger economy would produce more jobs during the year ahead,” Curtin said. Curtin added that “Consumers reported that a healthier economy had already created more jobs, and consumers expected the growth in the number of jobs to accelerate during the year ahead.”

Although consumers anticipate the rate of economic growth to slow to a more sustainable pace from the extraordinary 3rd quarter pace of 8.2%, they nonetheless expected more sizeable employment gains in the months ahead. “If such employment gains are forthcoming it would act to confirm and accelerate the gains in consumer confidence and energize spending during the year ahead,” Curtin noted. “The data do not indicate a surge in unbridled optimism, but a more cautious optimism. An optimism that is dependent on job growth not just growth in production. An optimism that is more dependent on regaining the 1.2 million jobs lost during the past eight quarters even as GDP growth averaged a respectable 3.4%,” explained Curtin.

The Index of Consumer Sentiment was 93.7 in the November survey, up from 89.6 one month earlier and 84.2 one year earlier. Overall, the Sentiment Index has posted a cumulative gain of 21% since its low of 77.6 recorded in March 2003. The Expectations Index, a closely watched component of the Index of Leading Economic Indicators, rose to 88.1 in the November survey, up from 83.0 in October and 78.5 in November of 2002. The Expectations Index has posted a cumulative gain of 26% since it low of 69.6 in March 2003. More consumers expected good times in the economy as a whole in the November 2003 survey than at any other time since the current decline started three years ago. As a result of the strengthening economy, consumers expected a falling unemployment rate. “More consumers reported that jobs were already more plentiful in the November survey, and more consumers expected a declining unemployment rate than any other time during the past ten years,” said Curtin.

In comparison to the better prospects for the overall economy, consumers held unchanged views about their current personal financial situation. One-third of all households reported that their finances had worsened during the past year, nearly as many as reported improved finances. “Even with stronger income growth, it will take some time to restore the weakened finances of U.S. households,” Curtin said. No change was recorded in consumers’ assessments of their future financial prospects, although less than one-in-ten expected their finances to actually worsen during the year ahead. “Although consumers anticipate larger income gains during the year ahead, the income gains were expected to be diluted by a somewhat higher inflation rate,” Curtin explained.

The anticipated improvement in job and income prospects had an immediate favorable impact on buying plans. “Attitudes toward buying furniture, appliances, home electronics, and other large household durables benefitted the most from the reductions in uncertainty about future job and income prospects,” according to Curtin.

Favorable home and vehicle buying attitudes remained near their all-time peak levels. “While consumers are convinced that interest rates will remain low during the months ahead, the majority of consumers anticipate that interest rates will increase during the year ahead,” Curtin said. Increases in interest rates will have the greatest negative impact on home and vehicle purchases.

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