ANN ARBOR—Consumer sentiment remained at very favorable levels in September, with the index topping 100 for only the third time since January 2004, according to the University of Michigan Surveys of Consumers.

Most of the September gain was among households with incomes in the bottom third, whose index value of 96.3 was the highest since November 2000, said U-M economist Richard Curtin, director of the surveys.

In contrast, the Sentiment Index among households with incomes in the top third lost a total of 8.1 percent during the past seven months since reaching its cyclical peak of 111.9 in February 2018. This divergence across income subgroups has been observed in past economic cycles and indicates that the expansion has now benefitted nearly all population subgroups.

Overall, the latest data indicate that real consumer spending will advance at a 2.6-percent pace in the second half of 2018 to the first half of 2019.

“Consumers anticipated continued growth in the economy, an even lower unemployment rate and gains in their own finances during the year ahead,” Curtin said. “While some declines were recorded among higher income households, the outlook for consumer spending is still quite favorable.

“The single issue that worries consumers is the potential negative impact of tariffs on the economy. These concerns were cited by nearly one-third of all consumers in each of the past three months. Those that voiced negative views of tariffs also held much less favorable prospects for the economy and held inflation expectations that were 0.6 of a percentage point higher than those who didn’t mention tariffs.”

Personal Finances Near Record Levels

When asked about financial prospects for the year ahead, 44 percent of all consumers expected improved finances, the highest reading since 2004, and not much below the all-time peak of 49 percent set in 1998.

Consumers judged their current financial situation very favorably, as improvements in their finances were cited by 56 percent in September, just below the all-time record of 57 percent recorded in both March 2018 and February 1998. Income gains were cited by 44 percent in September, just below the 2018 peak of 47 percent and the all-time peak of 51 percent in February 1953.

Buying Plans Improve

Consumers’ views of buying conditions for homes, vehicles and durables grew more optimistic in September, mainly due to greater certainty of job and income prospects. Consumers anticipated that the already record-low unemployment rates would continue to slowly decline in the year ahead.

In addition, consumers were slightly more likely to favor advance buying ahead of anticipated increases in either interest rates or prices—favored by 20 percent for durables, 13 percent for vehicles and 25 percent for homes. Nonetheless, consumers were still more likely to cite low prices and low interest rates for favorable conditions in all markets.

Consumer Sentiment Index

The Consumer Sentiment Index was 100.1 in September 2018, up from 96.2 in August and last September’s 95.1. The Expectations Index rose to 90.5 in September, up from 87.1 one month ago and 84.4 one year earlier. The Current Conditions Index rose to 115.2 in September from 110.3 in August and 111.7 in last September’s survey.

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.

More information:

• Surveys of Consumers
• U-M Institute for Social Research