ANN ARBOR—Consumer confidence is now at its highest level in more than 30 years, according to Richard T. Curtin, director of the University of Michigan’s Surveys of Consumers.

The 1997 surveys found that consumers reported the most favorable economic assessments since 1965. “The restoration of confidence has been widespread, extending across all major population groups and in all parts of the country,” Curtin said.

“The Index of Consumer Sentiment averaged 102.9 in the 1997 surveys, the highest level since it averaged 103.4 in 1965.” Curtin reported the survey results today (Nov. 20) at the 45th annual Economic Outlook Conference at U-M.

The factors responsible for the record levels of confidence were “low inflation, low unemployment, and strong growth in personal incomes,” Curtin said. Forty-two percent of all families expected their financial situation to improve in 1998, compared with just 8 percent that expected their financial situation to worsen.

All income groups were as likely to give favorable financial assessments in 1997 as in 1965, even though annual income gains were generally higher in the 1960s. “The results suggest that today’s consumers have accorded more favorable assessments to relatively smaller financial gains. “The positive outlook expressed by consumers was not because they expected even higher income gains next year, but because they expected a lower inflation rate, and as a result, an improvement in their living standards,” Curtin explained.

The outlook for inflation continued to improve. “Consumers expected an inflation rate to not only remain below 3 percent during 1998, but to remain below 3 percent during the next five years. More importantly, the long-term inflation expectations have continued to trend downward during 1997, although at a slower pace than in the prior few years,” he said.

Three out of four consumers expected the unemployment rate to stay low in 1998. Overall, “the recent survey found a sharp decline in people’s concerns about future job prospects, falling to the lowest level in more than 10 years,” Curtin said.

Consumers are optimistic about the outlook for the national economy. “Two-thirds expect conditions in the national economy to remain good during the year ahead, and half of all consumers expect the current expansion to last another five years,” Curtin said.

“The positive outlook over the longer term is far from universal,” he added, “as about one-third of all consumers thought that the economy could again slip into recession sometime during the next five years.”

The 1997 confidence records were achieved in much the same way as the 1965 record was gained. “In the four years prior to reaching the 1965 peak, there was widespread concern about persistently high unemployment. Then as now, it was the reduction in these concerns that sparked the record levels of confidence,” Curtin said.

Now that consumers, for the first time in 10 years, feel more secure with regard to employment, will they start to press for increases in wages and trigger spiraling inflation? “Current conditions do raise concerns about the potential impact of rising wages on inflation, but there are other factors that will limit the ability of retailers to raise prices,” Curtin said.

“Today’s consumers act in ways that limit the ability of business firms to raise prices. If consumers believe prices are too high, they will postpone their purchases and wait for renewed discounting, or they will seek out better buys elsewhere,” said Curtin, adding, “if inflation does begin to edge upward, consumers may earn a new reputation—as inflation-busters rather than inflation-makers.”