Consumer sentiment highest in decade in January
January 30, 2015
ANN ARBOR—Consumer optimism rose in the January 2015 survey to its highest level in the past decade, according to the University of Michigan Surveys of Consumers.
Conducted by the U-M Institute for Social Research since 1946, the surveys monitor consumer attitudes and expectations. The data is available non-exclusively via Bloomberg.
Most of the gains were recorded since mid-2014, according to U-M economist Richard Curtin, who directs the surveys. Importantly, the gains during the past six months were as large among households with incomes under $75,000 as over that amount.
Consumers anticipated that the economy would expand and create new jobs at the best rate in the past decade. Consumers are counting on rather modest wage gains during the years ahead to boost their spending plans. Overall, the more optimistic data indicate that total real personal consumption expenditures will grow at 3.3 percent during 2015.
“Consumers expect the renewed economic strength to create more jobs, but the only boost to their discretionary incomes has been due to falling oil prices,” Curtin said. “Consumers have now turned to wages rather than jobs as the primary characteristic they use to judge the performance of the economy.
“Thus far, only younger and higher skilled workers anticipate wage gains that are appreciably higher than the low inflation rate. Without stronger growth, consumers will increasingly condition their spending on price discounts, adding to disinflationary pressures. Moreover, renewed wage growth is needed to bolster credit usage amid rising interest rates.”
Favorable Job Expectations
When asked about recent economic developments, more consumers volunteered positive news in the January survey than at any other time in the past 30 years. Net job gains as well as declines in gas prices dominated their replies.
Two-thirds of all consumers thought the economy had recently improved, and just over half anticipated an uninterrupted economic expansion over the next five years—both were at the best levels in a decade. Moreover, few consumers feared a rising unemployment rate in the January survey. There was only one survey in the past 30 years in which fewer consumers expected a rising jobless rate.
Wage Gains Now Main Criteria
More consumers reported gains in their finances than anytime during the past decade, and four-in-10 consumers specifically cited income gains as the primary reason, the most in nearly 15 years. Although consumers anticipated wage gains during the year ahead that were nearly four times as large as in last January’s survey, the typical consumer only expected a gain of 1.9 percent. While the highest since 2008, it remains at quite modest levels.
Consumer Sentiment Index
The Sentiment Index was 98.1 in the January 2015 survey, up from 93.6 in December and 81.2 last January. This was the highest level of the Sentiment Index since 103.8 was recorded in January 2004. The Current Conditions Index rose to 109.3 from 104.8 one month ago and 96.8 one year ago. The Expectations Index rose to 91.0 in January 2015 from 86.4 in December and 71.2 in January 2014.
About the Survey
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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