Surveys of Consumers: Rising employment, inflation anticipated

March 26, 2021
Contact: Bernie DeGroat bernied@umich.edu

Consumer sentiment rose in March, reaching its highest level in a year—mainly due to the third disbursement of relief checks and better-than-anticipated vaccination progress, according to the University of Michigan Surveys of Consumers.

As prospects for obtaining vaccination have grown, so too has people’s impatience with isolation, as those concerns were voiced by nearly one-third of consumers in March, the highest level in the past year, said U-M economist Richard Curtin, director of the surveys.

The majority of consumers reported hearing of recent gains in the national economy, mainly net job gains, and the data clearly point toward robust increases in consumer spending during the year ahead, Curtin said. The ultimate strength and duration of the spending surge will depend on the rate of draw-downs in savings since consumers anticipate a slower pace of income growth. Despite the vast decline in precautionary motives sparked by the easing of pandemic fears, those precautionary motives will not completely disappear, he said.

“Each side in the current policy debate finds support in the consumer data. The recovery is far from complete as less than half of the fall in consumer sentiment has so far been recovered, and the current and prospective stimulus and infrastructure spending has the potential to spark a renewed inflationary psychology, although that will not occur immediately,” Curtin said.

“Inflationary psychology preceded actual inflation by about two years in the last bout in the 1970s. The key balance is not to underestimate the ultimate impact of those policies on jobs and inflation, and not to overestimate the ability of policies to bring any excesses to a painless soft-landing.”

Economy and job gains expected

Consumers reported much more favorable assessments of the national economy. Favorable economic developments were cited by 57% of mentions in March, up from 38% last month. For the first time in the past year, more consumers expected good rather than bad times in the national economy during the year ahead, a significant improvement from last month when negative prospects were held by the majority. Expected job gains were a critical component, with continued declines in the jobless rate anticipated by nearly half of all consumers.

Personal finances remain weak

Despite anticipated stimulus payments, a stronger economy, job gains, and increases in home and stock values, few consumers reported improved financial expectations—just 33% in March, down from 36% last month, and just above the May 2020 low of 32%. When asked about expected income gains during the year ahead, the overall figure fell to 1.1% from last month’s 1.5%. Inflation-adjusted income expectations were the lowest in March  since January 2017 due to a widely anticipated but relatively modest increase in inflation in the months ahead.

Consumer Sentiment Index

The Consumer Sentiment Index was 84.9 in the March 2021 survey, up from 76.8 in February. Although just below last March’s 89.1, it was substantially ahead of the April 2020 low of 71.8. The Expectations component posted a sizable gain to 79.7 from last month’s 70.7, and the Current Conditions Index rose to 93.0, up from last month’s 86.2.

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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