Consumer Confidence rises in December: Discounts for all mean happy holidays

December 23, 2015

Surveys of ConsumersANN ARBOR—Consumer confidence rose to its highest level since July, according to the University of Michigan (U-M) Surveys of Consumers. The December reading was nearly equal to the 2015 average of 92.9—which was the highest since 2004,

The December gain was largely due to lower inflation, which bolstered real incomes and brightened buying plans for household durables, according to U-M economist Richard Curtin, who directs the Surveys. Indeed, there have been only three surveys in more than the past half-century in which a higher proportion mentioned the availability of price discounts for durables. Overall, the data point toward gains of 2.8 percent in real personal consumption expenditures during 2016.

“Just as consumer optimism became dependent on very low inflation, the Fed has begun to take steps to accommodate a higher inflation rate. Since wages are never first to incorporate inflationary adjustments, consumers will make their purchases even more contingent on low prices,” said Curtin. “Moreover, given the weakness in the global economy and the strong dollar, discounting will continue unabated. Indeed, consumers’ first reaction to the zero rate liftoff has been to emphasize the importance of compensating price discounts. As a result, the Fed policies will need to be much stronger to overcome the disinflationary psychology of consumers.” 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.

Personal Finances
Consumers’ assessments of their finances rebounded in December, although they remained slightly less favorable than at the start of 2015. While the smallest proportion of consumers in more than ten years complained that inflation had eroded their living standards, this was partially offset by less favorable references to net household wealth than prior to the stock swoon in late August. Importantly, inflation-adjusted income expectations reached their most favorable level since 2002. This was due in part to near record lows in inflation expectations as well as slightly improved income expectations.

Shopping for Discounts
Buying plans for household durables reached their highest level in a decade due to the availability of price discounts. There have been only three surveys in more than the past half-century in which a higher proportion mentioned the availability of price discounts for durables. Home buying plans recorded a significant jump in the number that made purchases contingent on the availability of reduced home prices in the latest survey, and nearly half of all consumers continued to cite the availability of low mortgage interest rates.

Consumer Sentiment Index
The Sentiment Index was 92.6 in the December 2015 survey, between November’s 91.3 and last year’s 93.6. The Current Conditions Index was 108.1, above last month’s 104.3 and last year’s 104.8. The Expectations Index was 82.7 in December, just below last month’s 82.9 and last year’s 86.4.

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.

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