April consumer confidence declines: Growing worries about future prospects

April 29, 2016

ANN ARBOR—Consumer sentiment continued its slow decline in April due to weakening expectations for future University of Michigan Surveys of Consumerseconomic growth, although consumers’ views of their current finances remained positive, according to the University of Michigan (U-M) Surveys of Consumers. The top concerns of consumers involve whether the anticipated slowdown in economic growth will lead to slower income and job gains, and the rise in uncertainty about future economic policies depending on the outcome of the election, according to U-M economist Richard Curtin, who directs the Surveys. Consumers have hedged these concerns by upping their savings in the 1st quarter in each of the past three years, while still powering the expansion forward. Overall, the data indicate that real consumption will grow by 2.5 percent in 2016.

Conducted by the U-M Institute for Social Research (ISR) since 1946, the Surveys monitor consumer attitudes and expectations. The data are available non-exclusively via Bloomberg. “The retreat from the 2015 peaks was evident across a wide range of expectations about prospects for the national economy,” said Curtin. “The size of the decline, while troublesome, is still far short of indicating an impending recession. The decline is all the more remarkable given that consumers’ assessments of current economic conditions, including their personal finances, have remained largely unchanged at very positive levels during the past year. This divergence may reflect the strength of the consumer relative to the business sectors, and may be exacerbated by growing uncertainty about the economic policies advocated by various presidential candidates.”

Personal finances
Recently improved finances were cited by 45 percent in April, and just 11 percent anticipated that their financial situation would worsen during the year ahead. Income gains were reported by 37 percent of all consumers, not much below the decade high of 40 percent in January 2015. Consumers, however, were somewhat more guarded about their future financial prospects, including the size of expected income gains as well as the pace of new job creation. While the majority of consumers still anticipates higher incomes and expects the unemployment rate to remain as low or even lower than at present, optimism about income and job prospects has weakened during the past year.

Diminished pace of economic growth expected
Although half of all consumers reported that the economy continued to improve, when asked about prospects for the year ahead, consumers were less optimistic. While not expecting a downturn anytime soon, consumers have increasingly concluded that even the modest gains during the past few years may be difficult to repeat in the years ahead. These concerns may be temporary and improve along with the economy in the balance of the year.

Consumer Sentiment Index
The Sentiment Index was 89.0 in the April 2016 survey, down from 91.0 in March and 95.9 last April. All of the April decline was in the Expectations Index, which fell to 77.6 in April from last month’s 81.5 and last year’s 88.8. In sharp contrast, the Current Conditions Index rose to 106.7 in April from 105.6 in March, and just nearly equal to last year’s 107.0.

About the Surveys
The Survey 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 Indices the minimum is 6.0 points.

Surveys of Consumers www.umich.edu/~umsurvey
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