Consumer Sentiment Ends March at Cycle Highs
The University of Michigan’s Index of Consumer Sentiment edged down from earlier this month but it still at a cycle high of 101.4. Consumers’ assessment of the present situation is at its all-time high on income gains.
Confidence in Present Situation Boosted by Tax Cuts
- Consumer sentiment improved further by the end of March after posting a fresh cycle high early in the month. The Index now stands at 101.4, up from 99.7 in February.
- Match’s gain was because consumers’ appraisal of the present situation improved from 114.9 in February to an all-time high of 121.2 in March on income gains from tax cuts and job prospects. Expectations slipped from 90.0 in February to 88.8 in March.
Poisitive Sentiment from Low End of Income Bracket
- The notable takeaway from the March sentiment report is that much of the improvement came from the bottom third of the income distribution. Households in the bottom third income bracket are upbeat about tax cuts and the strong job market. Sentiment and expectations slipped among the top third, which cited concern over future government economic policy, notably trade, and were likely more cautious of recent market volatility.
From Surveys of Consumers chief economist, Richard Curtin.
Consumer sentiment at month’s end was marginally below the mid-month reading due to uncertainty about the impact of the proposed trade tariffs. The Sentiment Index, however, still reached the highest levels since 2004, and the Current Conditions Index set a new all-time peak. Importantly, all of the March gain in the Sentiment Index was among households with income in the bottom third (+14.1); those in the middle third were unchanged while the Index fell among household in the top third (-5.6). Households with incomes in the top third cited significantly greater concerns with government economic policies than last month, especially trade policies, with the net references falling from +31 to just +1, offsetting their positive reactions to tax policies. The consensus expectation among consumers is that interest rates will increase in the foreseeable future. While consumers view the current level of interest rates as still relatively low, they understand that interest rate hikes are intended to dampen the future pace of economic growth. Their reaction will both emphasize borrowing-in-advance of those expected increases as well as heighten their precautionary savings motives. The trade-ff between spending and saving will crucially depend on the pace of future interest rate hikes compared with the pace of income growth. It is likely that income growth will initially dominate, tilting consumers’ motives more toward spending than saving. Overall, the data are consistent with growth of 2.6% in consumption from mid-2018 to mid-2019.