ANN ARBOR—Consumer optimism reached a ten-year peak of 95.5 in the 1st quarter of 2015—its highest level since the 3rd quarter of 2004, according to the University of Michigan (U-M) Surveys 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.
Although optimism has eased back slightly since the start of the year, January’s surge in confidence was largely due to falling gasoline prices and the small retreat since then was largely due to the unusually harsh winter, according to U-M economist Richard Curtin, who directs the Surveys.
Most of the recent variation was among lower income households, whose budgets are more sensitive to higher utility costs and disruptions in work hours. Households with incomes in the middle and top thirds of the distribution, in contrast, recorded gains in confidence in the March survey. While consumer spending weakened in the 1st quarter of 2015, it is still likely to post a gain of 3.3 percent for the year as a whole.
“The harsh winter weather and the small rebound in gas prices caused some slippage in consumer confidence since the start of the year,” said Curtin. “Nonetheless, expanding job opportunities as well as more favorable wage gains have meant that consumer spending will strongly rebound during the balance of the year. The appeal of attractive pricing as a spending driving force has begun to fade, and has been increasingly replaced by more attractive credit conditions. The greater sensitivity of consumers to credit conditions will increase the power of the Fed’s actions, so that they can accomplish more with a smaller change than was true in the past.”
Wage Gains Begin to Broaden
While the current finances of consumers were a little less positive in March than in January and February, they were still judged more favorably than anytime in the prior eight years. While the largest income gains were expected by those under age 45 and by households with incomes in the top third, the largest improvements during the past year were among middle income households and those aged 45 to 64. The broadening of positive income expectations is certainly a good indication for future spending.
Mortgage Rates Trump Prices
Views of home buying conditions remained very favorable in the March 2015 survey, although the reasons given by consumers have shifted from a reliance on low prices to being dependent on low mortgage rates. The smallest proportion of consumers since 2006 cited low home prices, and the highest proportion in the last ten years cited low mortgage rates in the surveys conducted in the 1st quarter of 2015.
Consumer Sentiment Index
The Sentiment Index was 93.0 in the March 2015 survey, just below February’s 95.4, but was significantly above last March’s 80.0. The Current Conditions Index retreated to 105.0 in March from 106.9 one month ago, and was well above last year’s 95.7. The Expectations Index fell to 85.3 in March from 88.0 in February, but posted a substantial gain from last March’s 70.0.
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.