Consumers lament: Where have all the discounts gone?

May 25, 2018
Contact: Bernie DeGroat bernied@umich.edu

ANN ARBOR—Consumer sentiment slipped by less than an index-point from last month, remaining at the same favorable levels for the past 18 months, according to the University of Michigan Surveys of Consumers.

Since President Trump’s election, the Sentiment Index has meandered in a tight eight-point range from 93.4 to 101.4, with the small month-to-month variations indicating no emerging trend, said U-M economist Richard Curtin, director of the surveys.

Consumers, he said, have remained focused on expected gains in jobs and incomes as well as anticipated increases in interest rates and inflation during the year ahead.

References to low prices for household durables, vehicles and homes fell to decade lows. Coupled with higher interest rates, it is likely that the pace of growth in personal consumption will average about 2.6 percent during the year ahead, he said.

“As past expansions have shown, rising interest rates do not suppress spending gains as long as they are accompanied by more substantial increases in consumer incomes,” Curtin said. “The May survey, however, found that consumers anticipated smaller income gains than a month or year ago, even though they anticipate a continued tight labor market.

“Although consumers anticipated a slightly higher year-ahead inflation rate, they expected the uptick to be temporary and for the inflation rate to fall back in the years ahead. While the vast majority of consumers anticipate repeated rate hikes in the year ahead, those increases must be accompanied by stronger income growth to ensure a robust expansion.”

Income Gains Remain Subdued
The long-awaited rise in wages was still absent in the May survey, as consumers anticipated gains in household incomes of just 1.6 percent, down from last month’s 2.2 percent and last year’s 2 percent. Those under age 45 anticipated income gains of 3.5 percent and those with incomes in the top third expected income gains of 3.2 percent; all other subgroups were under 2 percent.

The majority of consumers (51 percent) expected the unemployment rate to stabilize at about its current 18-year low, with equal proportions of consumers expecting some minor increases or minor declines in the year ahead (24 percent).

Low Prices Disappear
Favorable views of buying conditions fell slightly for household durables, vehicles and homes. Although the falloff still left buying plans at generally favorable levels, the widespread declines were due to how consumers assessed current market prices.

Net price references were the least favorable for household durables since just prior to the Great Recession, for vehicles since 1997, and for homes since 2006—although higher home prices brightened prospects for selling homes. Rather than prices or interest rates, consumers have increasingly cited greater certainty about their future jobs and income as the underlying reason for advancing their purchases.

Consumer Sentiment Index
The Consumer Sentiment Index was 98.0 in the May 2018 survey, barely below the 98.8 in April and just above the 97.1 in last May’s survey. The Current Conditions Index fell to 111.8 in May, down from 114.9 in April, and nearly identical to last May’s 111.7. The Expectations Index was 89.1 in May, up from 88.4 in April and last year’s 87.7.

About the Surveys
The Surveys 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 Index the minimum is 6 points.

Surveys of Consumers
U-M Institute for Social Research