March consumer confidence: Income Growth Key to Expanding Consumer Sales

April 1, 2016

ANN ARBOR—Despite small monthly variations, the overall level of consumer confidence has remained largely unchanged over the past three quarters, according to the University of Michigan (U-M) Surveys of Consumers.

Surveys of ConsumersThis stability has resulted from increased optimism about personal finances being offset by expectations of slower economic growth, according to U-M economist Richard Curtin, who directs the Surveys. The divergence has been sizable as consumers viewed their financial prospects as the best in a decade, while the outlook for the economy was evenly split between those who expected renewed gains and those who anticipated worsening conditions. Overall, consumers anticipated a continued expansion, but have increasingly recognized that it will not be strong enough to provide further cuts in the already low unemployment rate. Overall, the data indicate gains of 2.7 percent in real consumer spending 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.

“Consumers widely anticipated that gasoline prices will slowly increase in the year ahead, and anticipated that the slower pace of economic growth will more than likely put an end to further declines in the unemployment rate,” said Curtin. “What is surprising is that the expectation of higher prices and higher unemployment has not caused an increase in uncertainty about personal financial prospects. To be sure, the positive outlook for consumer spending is contingent on the view held by most consumers that the jobless rate will be maintained close to its very low current level and that gas prices will increase only modestly above their recent lows.”

Personal Finances Brighten
Recent income increases were cited by 38 percent of all consumers in March, the second highest percentage since 2005. Moreover, the fewest consumers since 2003 complained that high prices had decreased their living standards. Importantly, consumers were more optimistic about their finances during the first three months of 2016 than any time since the closing quarter of 2006. Rising incomes and falling prices were equally responsible for the improvement in finances, as the fewest consumers since 2008 anticipated inflation-adjusted income declines.

Weaker Economic Growth Dims Job Prospects
There was little change in the March survey in consumers’ judgments of the lackluster performance of the economy. Consumers expected another year of a somewhat slower pace of economic growth, and were split evenly on whether this meant better or worse economic times were ahead. Importantly, this meant that consumers expected slight increases rather than any further declines in the jobless rate by the 1st quarter of 2017.

Consumer Sentiment Index
The Sentiment Index was 91.0 in the March 2016 survey, just below February’s 91.7 and insignificantly below last March’s 93.0. Most of the decline in the past year has been concentrated in the Expectations Index, which fell to 81.5 in March, just under last month’s 81.9 but well below last March’s 85.3. The Current Conditions Index was 105.6 in March, between last month’s 106.8 and last year’s 105.0.

About the Surveys
The Surveys 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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Surveys of Consumers, (734) 763-5224 or

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