Consumer Sentiment Rises to Second-Highest Since 2007
Consumer confidence increased in April to the second-highest level in more than eight years as Americans grew more upbeat about their financial prospects.
The University of Michigan said May 1 that its final index for the month increased to 95.9 from 93 in March. The median projection in a Bloomberg survey of economists was for 96, little changed from the preliminary April reading of 95.9.
A stronger sense of job security and building momentum in wage growth are helping to buoy confidence, which may encourage consumers to spend rather than save their paychecks. Low fuel costs and continued labor market progress will help keep households upbeat even as the Federal Reserve considers raising interest rates for the first time since 2006.
“Confidence is down from its absolute high in the last couple months, but it still shows a clear net pickup recently,” Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York, said before the report. “The confidence numbers look consistent with consumer spending picking up.”
Estimates in the Bloomberg survey of 59 economists ranged from 93 to 97.5. The index averaged 84.1 last year.
The sentiment survey’s current conditions index, which takes stock of Americans’ views of their personal finances, rose to a three-month high of 107 in April from 105.
The measure of expectations six month from now increased to 88.8 from 85.3.
“Personal financial prospects have improved significantly,” Richard Curtin, director of the Michigan Survey of Consumers, said in a statement. “Financial gains were expected by 37% of all consumers in April. Although just above the 36% recorded in the prior two months, it was the highest proportion recorded since April 2007.”
Americans expected an inflation rate of 2.6% in the next year, down from 3% in March. Over the next five to 10 years, they also expect a 2.6% rate of inflation, compared with 2.8% in the previous month.
The consumer sentiment report is at odds with other figures released this week. The Bloomberg Consumer Comfort Index fell to 44.7 in the period ended April 26, the third consecutive drop, from 45.4 the prior week.
The Conference Board’s consumer confidence index dropped to a four-month low of 95.2 in April, weaker than the most pessimistic forecast in a Bloomberg survey of economists.
The outlook took a hit this week as a report showed the economy barely grew in the first quarter, expanding at a 0.2% annual rate after a 2.2% in the final three months of 2014.
“Overall, the near- and longer-term outlooks for the economy, while slightly below the peaks recorded three months ago, were the second-most favorable levels recorded since 2004,” Curtin said. “Prospects for the unemployment rate in April were only more favorable in four other surveys since 1984.”
Wages and salaries climbed by 0.7% after a 0.6% increase in the fourth quarter, the Labor Department said April 30. Private wages, which exclude those government workers, rose 2.8% in the last year, the biggest advance since the third quarter of 2008.
In the meantime households may be counting on continued savings from cheap gasoline to help pad their balance sheets. While the average cost of a gallon of regular gasoline was $2.58 on April 29, the highest since mid-December, it is down from last year’s peak of $3.70.
Cheap gas may persuade more Americans to hit the road, benefiting companies such as midscale hotel owner and franchiser La Quinta Holdings Inc., CEO Wayne Goldberg said on an April 29 earnings call.
“We feel very good that all of the indications from a leisure standpoint are very positive,” Goldberg said. “We see an economy improving.”
More gains in consumer confidence may persuade households to boost spending, which was lackluster in the first quarter. Consumption climbed at a 1.9% annualized rate in the first three months of the year, less than half the pace of the prior three months, when spending climbed at the fastest rate since 2006.
