The latest University of Michigan Surveys of Consumer Sentiment reports record-level income gains accompanied by lower than expected year-ahead inflation rates, resulting in more favorable real income expectations.
Richard Curtin, a U-M economist and director of the survey, says the March report showed the largest proportion to report income gains since 1966, and entirely due to households with incomes in the bottom two-thirds of the income distribution, whereas the February gain was concentrated among upper income households.
Rather than indicate an emerging recession, the data points toward continued economic growth, Curtin says. In addition, he says there wasn’t enough time since the summary release of the Mueller probe which showed the Trump campaign did not collude with the Russians leading up to the 2016 presidential election to determine if it had any impact on the March data; if there is any. It may affect the April data, he adds.
“Consumer confidence has remained very strong during the past two years, with record proportions of consumers now citing income gains and low inflation,” Curtin says. “Nonetheless, consumers have continued to voice their dissatisfaction with increases in price and interest rates on homes and vehicles purchases.
“The level of resistance suggests that consumers will remain a force in keeping future inflation and interest rates at low levels. Unlike the past, when consumer behavior acted to promote booms as well as busts, consumers now act to diminish excesses. It is the consumer rather than the Fed who now takes away the punch bowl just as the party gets going.”
Recently improved finances were cited by 56 percent of all consumers in March, just below the all-time record of 57 percent recorded last March and in February 1998. Reported income gains were cited by 47 percent of all consumers, matching the June 2018 reading; a higher proportion was last cited in 1966 (50 percent, the all-time peak).
When asked about how they anticipated their income to change in the year ahead, the anticipated gain of 2.6 percent was the highest since 2007. Declines in the year-ahead inflation rate also meant that real income expectations rose to their highest level since the January 2000 survey.
Consumers voice the most positive outlook for the national economy since the Great Recession, with 56 percent expecting good times financially in the economy as a whole.
While longer term prospects for the economy remained positive, they were largely unchanged from last month or last year; nearly equal proportions expected an uninterrupted expansion or a downturn sometime in the next five years. Rather than declining interest rates in the year ahead, the majority of consumers continued to anticipate additional increases in interest rates in 2019.
The Consumer Sentiment Index was 98.4 in March 2019, up from 93.8 in February 2019 but still below the fifteen-year peak of 101.4 set last March. The Expectations Index rose to 88.8 from 84.4 in February and equal to last March’s figure. The Current Conditions Index rose to 113.3 from last month’s 108.5 but was well below last year’s 121.2.
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 points.
