ANN ARBOR—Consumer confidence rose in October with the entire rebound due to gains in confidence among lower income households. Confidence among households with incomes in the top third of the income distribution retreated a bit due to concerns about volatile financial markets, according to the University of Michigan (U-M) Surveys of Consumers.
Overall, the Sentiment Index has been higher in 2015 than in any year since 2004, according to U-M economist Richard Curtin, who directs the Surveys. Importantly, all households viewed future financial prospects more favorably in October than at any time since 2007. In addition, the expected long-term inflation rate dropped to the lowest level in over a quarter century. These favorable trends will keep the annual rate of growth in consumer spending at 2.9 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 most impressive aspect has been a newfound resilience by consumers to a host of negative developments,” said Curtin. “Confidence has remained at quite favorable levels despite volatile financial and commodity markets, pressures on employment from less competitive exports, the likelihood of higher rates on credit, and the need for higher federal debt limits, just to name a few events that have caused a plunge in confidence in the past. How could consumers remain confident? Gains in employment, a near zero inflation rate, and less pressing material aspirations have provided consumers with a renewed sense of optimism about their future financial situation.”
The recent strength among lower income households was due to more frequent reports of income gains in October. When asked about their financial prospects for the year ahead, all households expressed a degree of financial optimism not seen since mid 2007. More than a third of all households anticipated improved finances during the year ahead, and half of all households expected their finances to improve over the next five years.
While negative news about the stock market was cut in half from last month, concerns about the potential adverse impact from the global economy and international trade (including the Trans-Pacific Partnership (TPP)) were mentioned at the same heightened level as last month. Although consumers judged these factors to have some positive benefits (mostly lower import prices), the negative impact on domestic jobs and production dominated their views. While slightly more consumers anticipated an increase rather than a decline in the national unemployment rate, the majority of consumers expected the jobless rate to remain largely unchanged during the year ahead.
Consumer Sentiment Index
The Sentiment Index was 90.0 in the October 2015 survey, up from 87.2 in September and last October’s 86.9. The largest improvement was in the Expectations Index, which rose in October to 82.1 from 78.2 in September and 79.6 in last October’s survey. The Current Conditions Index was 102.3 in October 2015, just ahead of the 101.2 in September and above last October’s 98.3.
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.