ANN ARBOR—Consumer confidence reached its highest level in six years in the July 2013 survey, according to University of Michigan economist Richard Curtin, director of the Thomson Reuters/U-M Surveys of Consumers.
Conducted by the U-M Institute for Social Research since 1946, the surveys monitor consumer attitudes and expectations.
This was the third consecutive month that consumer confidence has been higher than in any prior month since the July 2007 survey, according to Curtin. This persistently high level of confidence points toward a continued expansion in consumer spending during the year ahead. Importantly, along with renewed signs of income and job growth, consumers hold favorable buying attitudes, especially for interest-sensitive purchases of vehicles and homes. Rising stock and home values continued to bolster confidence, especially among higher income households. Home values were reported to have increased by the highest proportion of homeowners in the past six years.
“The July survey suggests a growing resilience among consumers that will enable them to more easily withstand the cross-current inevitable in a slow growth economy," Curtin said. "Mixed trends were evident in July as current economic conditions were judged more favorably while future prospects were viewed slightly less favorably, and optimism among lower income households moved up while optimism among upper income households moved down. These differences reflected the expectation that interest rates would rise in the future. Nonetheless, this was a robust sign that consumers expect the expansion to continue and act to speed up their buying plans.”
Personal Finances Improve
Younger households reported greater income gains, mainly due to gains in employment and work hours, while middle and upper income households were more likely to report gains in their assets as well as lower debts. Inflation-adjusted income gains during the year ahead were expected by the highest proportion since late 2007, and consumers judged the probability of real income gains over the next five years the best since November 2007.
Favorable Buying Plans
Interest rates were expected to increase in the year ahead by 68 percent of all consumers in July, up from 55 percent in June, twice as frequently as the 33 percent recorded last July, and the highest proportion to expect interest rate hikes since August 2006. The anticipated increases in interest rates dimmed longer-term prospects for the economy but acted to accelerate consumers' buying plans. Among households with incomes of $75,000 or more, more than one-in-four cited the advantage of buying homes before prices or interest rates increased in July, up from just 6 percent last July. Fewer consumers judged current vehicle buying conditions negatively than at anytime since August 2005.
Consumer Sentiment Index
The Sentiment Index was 85.1 in the July 2013 survey, up from 84.1 in June and 84.5 in May, and well above last July's 72.3. The Expectations Index fell to 76.5 in July from June's 77.8 but remained well above last July's 65.6. The Current Conditions Index, in contrast, rose strongly to 98.6 in the July 2013 survey, from 93.8 in June and last July's 82.7.
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-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.
Established in 1949, the University of Michigan Institute for Social Research (ISR) 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 (ICPSR), the world's largest digital social science data archive. Visit the ISR Web site at http://www.isr.umich.edu for more information.