Consumer confidence: Healthy job growth offsets dismal wage prospects
ANN ARBOR—The small June gain in consumer confidence was not as meaningful as the fact that the Consumer Sentiment Index has remained largely unchanged at its current level for the past six months, according to the Thomson Reuters/University of Michigan Surveys of Consumers.
Conducted by the U-M Institute for Social Research since 1946, the surveys monitor consumer attitudes and expectations.
This was remarkable given the sizeable 1st quarter drop in GDP, according to U-M economist Richard Curtin, who directs the surveys. Consumers believe that the 1st quarter decline in economic activity was due to the harsh winter weather, and that the economy has already returned to positive economic growth.
The dismissal of the economy’s poor performance was made possible by healthy job growth. Indeed, the June survey recorded the largest proportion of households that reported making financial gains in nearly seven years.
“Consumers did not expect such a negative GDP report, but it will not cause them to revise their expectations of future economic growth,” Curtin said. “Given that they ignored the dismal 1st quarter results, they are also likely to ignore the announcement of more favorable 2nd quarter GDP results in the months ahead.
“Unlike the usual seasonal adjustments that require established patterns, consumers had no trouble adjusting their expectations for a unique one-time event. This adjusted base must be considered when assessing the implications of consumers’ expectations that the economy will remain largely unchanged in the year ahead.”
More consumers said that their financial situation had improved in the June survey than anytime since 2007. The proportion of households that reported improved finances over the past year was 40 percent in June, up from 35 percent one month and one year ago.
Consumers, however, were a bit less optimistic about their future financial prospects. Just one-in-four households expected their finances to improve in the year ahead in the June survey. The biggest concerns were focused on expected wage growth, which most households expected would not exceed the inflation rate, meaning that nearly half of all households anticipated declining living standards.
Since most home buyers must sell their current home, home-selling conditions are critical. In the June 2014 survey, half of all homeowners reported that home-selling conditions were favorable for the first time in eight years—with the largest proportion since the May 2006 survey reporting home prices had improved, making the sale more attractive. Moreover, the smallest proportion reported that they would lose money if they sold their home.
Consumer Sentiment Index
The Sentiment Index was 82.5 in the June 2014 survey, between the 81.9 in May and last June’s 84.1. During the first half of 2014, the Sentiment Index remained remarkably stable. The largest June gains were recorded in the Current Conditions Index (96.6, up from May’s 94.5). The June Index of Consumer Expectations was barely below May level (73.5, down from 73.7), but was below last June’s 77.8.
About the survey
The Survey 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. For more information, visit the Surveys of Consumers website at http://press.sca.isr.umich.edu.
- Video about the Surveys of Consumers is available at http://youtu.be/JkQauI15hlE.
- Chart at http://bit.ly/1wFEtMi
- Table at http://bit.ly/1rH8nwR
Established in 1949, the University of Michigan Institute for Social Research is the world’s largest academic social science survey and research organization, and a world leader in developing and applying social science methodology and in educating researchers and students from around the world. For more information, visit the ISR website at www.isr.umich.edu.
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