ANN ARBOR. Falling stock prices and smaller wage gains have hurt most consumers, but low inflation and low interest rates have kept consumers buying homes and vehicles. “Consumers are well aware of the crosscurrents that now dominate the economy, and they have taken advantage of low interest rates as well as taken steps to rebuild their depleted savings,” according to Richard Curtin, the Director of the University of Michigan’s Surveys of Consumers. The potential for war with Iraq has had no discernible impact on consumer confidence as yet. “Consumers did not anticipate significant increases in energy costs in the September survey, nor did they express apprehensions about the war’s potential impact on the economy,” according to Curtin. The data indicate a slower rate of growth in consumer spending as well as a higher saving rate during 2003. “Home and vehicle sales will remain near their current high levels, but consumers will cutback their spending on nearly all other items,” Curtin said. Mortgage refinancing will provide more discretionary income, acting to lessen the spending cutbacks as well as helping consumers to rebuild their savings. The Index of Consumer Sentiment was 86.1 in September 2002, recording its fourth consecutive monthly decline. It is now just 4.3 Index points above last September’s low and 10.8 Index points below the 2002 high recorded in May. Nearly all of the weakness recorded in September was in consumers’ evaluations of current economic conditions not in how they judged future economic prospects. The Index of Consumer Expectations, a closely watched forward-looking component of the Index of Leading Economic Indicators, was 79.9 in September, barely below the 80.6 in August, and significantly above the last September’s 73.5. Consumers anticipated further declines inflation during the years ahead. “Consumers expected a lower five-year inflation rate in the September survey than at any other time during the past quarter century,” according to Curtin. The expectation of continued disinflation has made the smaller income gains that consumers now anticipate more palatable and has also heightened their expectations for larger discounts when shopping. “Consumers will expect even larger discounts during this year’s holiday shopping season, and consumers are likely to avoid retailers that don’t offer deep discounts and a high value for their money,” noted Curtin. Consumers demands for discounts will also spring from their battered financial situation. One-third of all households reported that their finances had worsened, the highest level in ten years. “Fewer households reported income gains in 2002 than anytime since the early 1990s, and more households reported decline in their wealth than at any other time in the fifty year history of the surveys,” according to Curtin. Consumers reported mixed changes in their views on the economy. “Although consumers more frequently mentioned hearing of job losses in September, they were less fearful about potential increases in unemployment during the year ahead. Consumers were more optimistic about the near term prospects for the national economy, although they thought the pace of economic growth would slow somewhat in 2003,” Curtin said.

Surveys of Consumers