Recent gains keep confidence warm in January

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Richard Curtin. Image courtesy of D.C. GoingsRichard Curtin. Image courtesy of D.C. GoingsANN ARBOR—Consumer confidence edged downward in January, although the overall falloff was minor, according to the Thomson Reuters/University of Michigan Surveys of Consumers.

Conducted by the U-M Institute for Social Research since 1946, the surveys monitor consumer attitudes and expectations.

Unfortunately, in the months ahead larger-than-normal home heating bills caused by the frigid weather will strain budgets across the country, with the greatest negative impact on lower income households, according to U-M economist Richard Curtin, director of the surveys.

Despite the recent economic gains, consumers’ outlook for their finances as well as for the national economy over the longer term have remained more resistant to improvement than in past recoveries.

Richard Curtin

Slowing gains in stock and home values also will curtail the rate of spending growth by upper income households. Vehicle and home sales will continue to improve during the year ahead, although the pace of gains in overall consumer expenditures will slow in 2014 from the exceptional 3.3 percent pace in 4th quarter 2013.

"Despite the recent economic gains, consumers' outlook for their finances as well as for the national economy over the longer term have remained more resistant to improvement than in past recoveries," Curtin said. "This deeply rooted uncertainty about future economic conditions was first sparked by the Great Recession.

"It has been sustained by the growing recognition that no federal policy has yet emerged that will restore long-term economic prosperity anytime soon for the majority of consumers. Optimism about long-term job and income prospects are essential for maintaining high levels of economic motivation. Too few consumers have regained that optimism."

Graph depicting the Index of Consumer SentimentPersonal Finances Improve
Consumers judged their recent financial progress more favorably in January than at any other time during the past six months. When asked to explain in their own words how their finances had changed, the highest proportion of consumers since November 2007 mentioned income increases. Despite these recent gains, half of all households expected no income increase during the year ahead in the January survey. Just one-in-four consumers in the January survey reported being better off financially than five years ago and expected their financial situation to improve during the next five years.

Table depicting the Index of Consumer Sentiment and Current Conditions IndexJob Prospects Improve Due to Stronger Economy
Consumers were more upbeat about recent economic developments, although most of the gains were reported by upper income households. Those with incomes in the top third of the income distribution more frequently reported net job gains, while those in the bottom two-thirds were more likely to report net job losses. Confidence in government economic policies remained quite negative, with little difference between income subgroups.

Consumer Sentiment Index
The Sentiment Index was 81.2 in the January 2014 survey, just below the 82.5 in December, but well above last January's 73.8. The year-to-year gain was more heavily weighted toward how consumers evaluated current conditions rather than future economic prospects. The Expectations Index posted an annual gain of 6.9 percent, half the gain of 13.9 percent recorded by the Current Conditions Index.

About the survey
Surveys of Consumers logo
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 6.0 points. For more information, visit the Surveys of Consumers website at http://press.sca.isr.umich.edu.

 

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Established in 1949, the University of Michigan Institute for Social Research is the world's largest academic social science survey and research organization, and a world leader in developing and applying social science methodology, and in educating researchers and students from around the world. ISR conducts some of the most widely cited studies in the nation, including the Thomson Reuters/University of Michigan Surveys of Consumers, the American National Election Studies, the Monitoring the Future Study, the Panel Study of Income Dynamics, the Health and Retirement Study, the Columbia County Longitudinal Study and the National Survey of Black Americans. ISR researchers also collaborate with social scientists in more than 60 nations on the World Values Surveys and other projects, and the institute has established formal ties with universities in Poland, China and South Africa. ISR is also home to the Inter-University Consortium for Political and Social Research, the world's largest digital social science data archive. For more information, visit the ISR website at www.isr.umich.edu.

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