Resilient consumers: Sentiment remains high

January 31, 2020
Written By:
Bernie DeGroat

ANN ARBOR—Consumer sentiment remained at very positive levels, with the January reading of 99.8 insignificantly below the cyclical peak of 101.4, according to the University of Michigan Surveys of Consumers.

Richard Curtin

Richard Curtin

The maintenance of consumer sentiment near cyclical peak levels is surprising given the overall slow pace of economic growth, which was accompanied in January by renewed military engagements in the Mideast, an impeachment trial in the Senate, and a fast spreading coronavirus, said U-M economist Richard Curtin, director of the surveys.

The resilience of consumers is remarkable and due to record low unemployment, record gains in income and wealth, as well as near-record lows in inflation and interest rates, he said. The data currently indicate that consumer spending will keep the economy expanding during the year ahead, although at a moderate pace.

“The most surprising finding in January was the degree of resiliency displayed by consumers in the face of a variety of events that in the past have prompted at least a rise in uncertainty if not outright pessimism,” Curtin said. “These concerns were offset by the favorable assessments of household income and wealth, which matched prior peaks in 2000 and 1966.

“Resilience in the face of recent events is unlike confronting potential shifts in basic economic policies. As the presidential primaries get underway, consumers may confront fundamental changes in tax and spending programs that could reshape the financial prospects for most American households.”

Continued Strength in Personal Finances

Consumers continued to favorably assess recent changes in their personal finances. Improving finances were reported by 53% of all consumers in January, exactly equal to the 2018 and 2019 averages—the highest two years in the past half century. Combined net changes in income and household wealth were cited in 40% of all mentions in January, comparable to the 1966 and 2000 peaks. Just 7% of all households expected their financial situation to worsen in 2020; the all-time low was 3% recorded exactly 20 years ago in January 2000.

Strengthening Economy Expected to Boost Labor Market

Consumers were more likely to expect an uptick in the pace of economic growth during 2020. Six-in-10 consumers thought the economy had already improved, well above last January’s 43%. Just over half of all consumers anticipated good times financially in the economy during the year ahead, and half expected the expansion to continue uninterrupted over the longer term. The improved pace of economic growth meant that nearly 80% of consumers anticipated that the national unemployment rate would be no higher by the end of 2020.

Consumer Sentiment Index

The Consumer Sentiment Index rose to 99.8 in January 2020, just ahead of last month’s 99.3 and significantly above last January’s 91.2. The Expectations Index rose to 90.5 in January, up from 88.9 in December and well above last January’s 79.9. Only one survey in the past three years was slightly higher, at 93.5 in May 2019. The Current Conditions Index slipped to 114.4 in January, down from 115.5 in December, but it remained above last year’s 108.8.

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% level in the Sentiment Index is 4.8 points; for the Current and Expectations Index, the minimum is 6 points.


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