Increase in Consumer Sentiment Surpasses Expectations

Increase in Consumer Sentiment Surpasses Expectations


After showing disappointing preliminary numbers, the final Thomson Reuters/University of Michigan Survey Index of Consumer Sentiment jumped to end March, according to the group Surveys of Consumers.

The monthly index reached 78.6, coming in above February’s reading of 77.6 and March 2012’s reading of 76.2. Preliminary figures released mid-March showed an index reading of 71.8, and economists surveyed by Bloomberg came out with a median forecast of 72.6 for the month.

The Current Conditions Index, a measure of sentiment about the current climate, rose 1.9 percent month-over-month to a final reading of 90.7, while the Index of Consumer Expectations rose a more modest 0.9 percent to a reading of 70.8.

“Although confidence dipped in early March, since the middle of the month consumers have expressed improved prospects for economic growth,” said Richard Curtin, chief economist for Surveys of Consumers.

“Two factors were responsible for the gains: consumers discounted the administration’s warning about economic catastrophe following the cuts in federal spending, and consumers have renewed their expectations that job gains will accelerate in the months ahead,” he explained.

Curtin also said he expects the gains seen in the last couple months will “stand a better chance to be sustained and ultimately lead to a lower unemployment rate and support consumer spending increases in the year ahead.”

Rising home prices provided their own boost to consumer confidence. According to a joint release, recent increases in home values were reported by the largest proportion of homeowners in more than five years, and more homeowners anticipate continued gains than in any month since March 2007. In addition, the quick pace of the market has made owners more willing to sell their current home and hastened decisions for buyers on the fence.

Surveys of Consumer also noted that higher home prices have provided an indirect boost to other purchases due to the subsequent rise in household wealth.

“Rising home prices have also had a positive impact on consumer balance sheets and their willingness to purchase homes and vehicles. The major problem now facing consumers in meager income increases, with half of all consumers expecting price increases to exceed income gains in the year ahead,” the release says.

“While the cuts in federal spending and the hike in payroll taxes will be a drag on economic growth, consumers now anticipate that accelerated job gains will provide an improved financial situation and enable moderate economic growth.”

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