ANN ARBOR—Consumers were more optimistic in the most recent survey about prospects for their own personal finances, according to University of Michigan economist Richard Curtin, director of the Thomson Reuters/University of Michigan Surveys of Consumers.
The Surveys, conducted by the U-M Institute for Social Research, have been monitoring consumer attitudes and expectations for over 60 years.
Consumers also anticipated continued improvement in the national economy, and expected the unemployment rate to decline significantly during the year ahead.
"Overall, consumers were more confident about economic prospects in October than any other time during the past five years," Curtin said.
Nonetheless, these substantial gains still left many consumers in a difficult financial situation, as equal numbers reported continued financial declines as reported that their financial situation had improved, he said. In addition, as many consumers anticipated improved economic conditions as expected continued problems in the national economy.
“The very positive economic expectations of consumers stand in sharp contrast to growing concerns expressed by investors and companies about the impending fiscal cliff as well as the impact of a slowing global economy," Curtin said. "While the surge in confidence will act to bolster consumer spending during the upcoming holiday season, it also means that this higher level of optimism is more vulnerable to reversal depending on how and when the fiscal cliff is bridged.
The surge in consumer optimism may be largely due to the implied election promises of both candidates that most of the Bush tax cuts and the payroll tax cuts will be promptly extended.”
Personal Finances Best in Five Years
Consumers judged their current financial situation more favorably in October than anytime in the past five years. More households reported recent income gains, and for the first time in four years, half of all households expected their annual incomes to increase during the year ahead.
Households anticipated the largest income gains since the November 2008 survey, although the expected gain was still small at just below 1 percent. Importantly, given the anticipated inflation rate, most consumers still expected no increase in their inflation-adjusted incomes.
Employment Gains Expected
Anticipated gains in the economy meant that consumers held much more favorable job expectations. The survey recorded the most favorable outlook for the unemployment rate since 1984. Less than one-in-five consumers anticipated any further increases in the unemployment rate during the year ahead in the October 2012 survey.
Consumer Sentiment Index
The Sentiment Index was 82.6 in October 2012, up from 78.3 in September and 74.3 in August, and well above last October's 60.8. The largest gains were in the Expectations Index, which improved by 7.5 percent from a month ago and by 52.8 percent from the disastrous lows following the debt ceiling debate a year ago. In contrast, the Current Conditions Index was 88.1 in October, up from 85.7 in September but just below August's 88.7. Importantly, current conditions were judged to be 17.6 percent better than last year.
About the Survey
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 Indices, the minimum is 6.0 points.
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.