ANN ARBOR—Consumer sentiment has remained largely unchanged at very favorable levels since the start of 2017, according to the University of Michigan Surveys of Consumers.
The Sentiment Index has been higher during the first eight months of 2017 than in any year since 2000, which was the peak year of the longest expansion in U.S. history, said U-M economist Richard Curtin, director of the surveys.
The renewed strength in 2017 was mainly due to consumers' record favorable assessments of their own financial situations, he said. Lows in unemployment, inflation and interest rates, as well as renewed gains in the value of their homes and stock portfolios, pushed personal financial evaluations to near all-time peaks.
"When consumers were asked about the news they had heard of recent developments, surprisingly few consumers made any reference to Charlottesville, North Korea or Harvey—although the ultimate extent of the damage from Harvey was unknown at the time of the last interviews," Curtin said. "Harvey may slightly diminish the 3rd-quarter pace of growth and cause higher gas prices.
"Given the current resilience of consumers, temporary increases in gas prices as well as a brief period of weakness in economic growth and employment are unlikely to derail confidence. Nonetheless, all of these events are more likely to increase precautionary motives and to slightly temper spending trends."
Personal Finances Reach Decade Peak
An improved financial situation was reported by 51 percent of all consumers in each of the past three months, the highest proportion since November 2000, and only slightly below the all-time peak of 57 percent in 1998.
When asked to explain how their finances had improved, consumers mentioned gains in incomes and household wealth from rising values of equities and homes. When asked about their financial prospects for the year ahead, 43 percent anticipated gains, the highest proportion since March 2004.
These records were set with the expectation that next year's income gain would be 1.9 percent across all households, but a more robust annual income gain of 4.6 percent was anticipated by householders under 45 years old in the August 2017 survey.
Home Buying and Home Selling Conditions Diverge
Rising home prices have driven a wedge between consumers' views of home buying and home selling, Curtin said. Home-buying conditions were viewed less favorably in August than anytime in the prior six years. Consumers were more likely to cite rising home prices for their negative views, mentioned by 22 percent of all consumers, the highest level in more than a decade.
In contrast, views about home-selling conditions have been more favorable during the past six months than anytime since the housing boom in 2005. When asked to explain their views, 36 percent mentioned rising selling prices, the highest level since this question was first asked in 1992.
Consumer Sentiment Index
The Consumer Sentiment Index was 96.8 in August 2017, up from 93.4 in July and 89.8 in last August's survey. The Current Conditions Index was 110.9 in the August 2017 survey, between July's 113.4 and last August's 107.0. The Expectations Index rose to 87.7 in the August 2017 survey, up from 80.5 in July and 78.7 in last August's 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 Indices the minimum is 6 points.