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Untitled Document


Nov. 24, 2004


Middling level of confidence: More spending and more saving

ANN ARBOR, Mich.—Consumer confidence posted modest gains in the November 2004 survey despite high energy prices, rising interest rates, and persistent concerns about job growth. “Consumers are both confident enough to spend more as well as cautious enough to save more in 2005,” according to Richard Curtin, the Director of the University of Michigan’s Surveys of Consumers.

Overall, the data indicate that real consumption spending will grow by 3¼ % in 2005; the rate of saving out of disposable personal income will increase to 1¼ % by the end of 2005, up from its all-time low of 0.4 % in the third quarter of 2004. Consumers expected a slower overall pace of economic growth during 2005, and as a result anticipated only small additional declines in the national unemployment rate. “Despite the substantial gains in employment recorded in the past month, consumers are not yet convinced that the economy will produce significant job gains over a sustained period of time,” noted Curtin.

The Index of Consumer Sentiment was 92.8 in the November 2004 survey, up from 91.7 in October, but below the 93.7 recorded last October. The Expectations Index, a closely watched component of the Index of Leading Economic Indicators, was 85.2 in November, up from 83.8 in October, but below the 88.1 recorded in November of 2003. While the overall level of both indexes remain at positive levels, both point toward a slowdown in the overall pace of growth during 2005 as compared with 2004.

While consumers do not expect an escalating inflation rate, high energy prices have had a harsh impact on household budgets, especially among lower income households. “When asked about prospects for their financial situation, the majority of consumers anticipate that their hard-won wage gains will be largely offset by higher inflation,” Curtin said. While consumers do not anticipate an additional surge in oil prices, few consumers expect substantial declines in energy prices anytime soon.

Rising interest rates had a greater impact on consumers in the November survey. “Consumers were more likely to expect additional increases in interest rates, and less frequently thought that current mortgage rates were attractively low in the November survey,” according to Curtin. Overall home buying attitudes were unchanged due to the increased appeal of borrowing in advance of any additional increases in mortgage rates.

Vehicle buying plans declined in November to their lowest level in three years due to less favorable evaluations of the discounts on prices and interest rates offered by manufacturers. “Vehicle discounts were viewed favorably by the fewest consumers since the zero rate plan was first introduced following 9/11, despite the fact that the size of the discounts have substantially increased over the past few years,” Curtin noted. Overall vehicle sales are now expected to remain largely unchanged in 2005 due to the availability of new models and continued deep discounting by vehicle manufacturers. This forecast would shift toward small sales declines in 2005 if vehicle buying plans remained unchanged at the lower November levels.

Further Information: Richard T. Curtin, Director Surveys of Consumers
Phone: (734) 763-5224
E-mail:
curtin@umich.edu
Internet: www.umich.edu/~umsurvey