ANN ARBOR—Consumer sentiment remained at very favorable levels during October, according to the University of Michigan Surveys of Consumers.

The October level was nearly identical to the average during the first 10 months of 2019 (95.6) and only marginally below the average level since the start of 2017 (97.0). The recent focus of consumers has been on income and job growth, while largely ignoring other news, said U-M economist Richard Curtin, director of the surveys.

The most spontaneous references were about the negative impact of tariffs, which fell to 27% in October from last month’s 36%; the impeachment inquiry totaled just 2% in October, less than the 5% who negatively mentioned the GM strike.

To be sure, the multiple sources of uncertainty will keep consumers focused on potential threats to their prevailing optimism, with the most critical being threats that could significantly weaken their job and income prospects, Curtin said.

“Favorable trends in job and income prospects stand in sharp contrast to overall declines in home and vehicle buying attitudes over the past few years,” he said. “The mismatched trends in personal finances and buying conditions has resulted in the lackluster pace of spending during this expansion.

“Earlier in the expansion, dismal growth in income and job prospects were matched with record favorable references to prices and interest rates on homes and vehicles. Later in the expansion, favorable income and job prospects were matched with the fewest favorable references to prices and interest rates in decades; they have become the expected norm and no longer spark significant gains in spending.”

Strength in Personal Finances

Recent income gains were reported by nearly half of all households, with less than one-in-10 households who anticipated that their finances would worsen during the year ahead, Curtin said.

Higher incomes were expected by nearly two-thirds of all households, and when combined with lower expected inflation rates, a record number of consumers anticipated inflation-adjusted income gains in October 2019. While consumers were still worried about the adequacy of funds for their retirement, recent surveys have recorded the largest gains in the past decade.

Consumers Expect Slower Job Growth

When asked about prospects for the economy during the year ahead, consumers gave a slight edge toward slower rather than a faster pace of growth. No downturn was anticipated as half of all consumers anticipated good times financially in the overall economy during the year ahead.

When asked about prospects for the economy over the next five years, consumers were nearly evenly split between a lengthening of the already record-long expansion and the prospect of a downturn sometime in the next five years. Overall, this meant that few consumers expected any further declines in the unemployment rate during the year ahead, Curtin said.

Consumer Sentiment Index

The Consumer Sentiment Index rose to 95.5 in October 2019, between September’s 93.2 and last October’s 98.6. The Expectations Index rose slightly to 84.2 in October but remained well below last year’s 89.3. The Current Conditions Index rose to 113.2, nearly identical to last October’s 113.1, and well below the March 2018 peak of 121.2.

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 Current and Expectations Index the minimum is 6 points.

Surveys of Consumers
U-M Institute for Social Research