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ANN ARBOR—Consumer confidence posted its third consecutive monthly gain in October, rising to its highest level since July 2007, according to the Thomson Reuters/University of Michigan Surveys of Consumers.

Conducted by the U-M Institute for Social Research (ISR) since 1946, the Surveys monitor consumer attitudes and expectations.

“Consumers have been gradually regaining their economic footing in the past several months, with confidence rising to the highest level since the start of the Great Recession,” said Richard Curtin, director of the surveys. “This is not the first time such a strong rebound has occurred, but this time it appears to have more forward traction. Consumers have not overreacted to the negative news of a global slowdown or Ebola, nor to the positive news of lower gas prices. Instead, consumers have kept their focus on improved job and wage prospects. Finally, five years after the start of the recovery, consumers have begun to adopt the expectations and behaviors that have driven past expansions.” View and download the chart and table (Excel files).

The October gain was due to improved personal finances as well as a more favorable outlook for the overall economy, according to Curtin. Indeed, consumers reported the most favorable personal financial expectations as well as the most positive year-ahead outlook for the national economy in the past seven years. What the survey did not find was any negative impact on confidence from the global economic slowdown, military conflicts, or Ebola. None of these issues was mentioned by more than a few respondents; instead, respondents emphasized improved wage and employment prospects due to a stronger economy. Gains in holiday spending are expected to be the best in several years, benefiting from higher confidence as well as falling gas prices at the pump.

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Economy Expected to Improve
Nearly six-in-ten consumers reported that the economy had recently improved, the most positive rating in more than ten years. When asked about the economic outlook for the year ahead, 45 percent expected good times financially, up from just 28 percent a year earlier, and the highest level since July 2007. Consumers anticipated that the continued strength in the economy would produce some additional declines in the national unemployment rate.

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Higher Income Gains Expected
In the September and October surveys, more households expected income gains than any time in the last six years—since September of 2008. Just as importantly, the median increase of 1.1 percent expected by all households was the highest since late 2008. While still meager, this improvement, along with a decline in the expected inflation rate, meant that more households expected their incomes to keep pace with or to exceed the inflation rate.

Consumer Sentiment Index
The Sentiment Index was 86.9 in the October 2014 survey, up from 84.6 in September and 73.2 last October. The entire October gain was concentrated in the Expectations Index, which rose to 79.6 from 75.4 one month ago and 62.5 one year ago. Although the Current Conditions Index slipped to 98.3 in October from 98.9 in September, it was well above last October’s 89.9.

About the Survey

Richard Curtin (Photo by D.C. Goings)

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% level in the Sentiment Index is 4.8 points; for Current and Expectations Index the minimum is 6.0 points. For more information, visit the Surveys of Consumers website at http://press.sca.isr.umich.edu.

Watch a video about the survey:

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