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Surge in consumer confidence

ANN ARBOR—Consumer sentiment surged in October, reaching its highest level since the start of 2004, according to the University of Michigan Surveys of Consumers.

This was only the second time that the Sentiment Index was above 100.0 since the end of the record 1990s expansion. The October gain was due to the most favorable assessments of the financial situation of consumers since 2000, said U-M economist Richard Curtin, director of the surveys.

In addition, the majority of consumers reported that the national economy continued to expand, which they have done in every survey conducted in 2017. To be sure, consumers don't anticipate accelerating growth rates but rather anticipate the uninterrupted continuation of the slower pace of growth that has characterized this recovery, Curtin said.

"The finances of consumers have benefited from low unemployment and inflation rates as well as renewed increases in home values and a resurgent stock market," Curtin said. "These favorable trends have made lower wage growth rates more acceptable.

"Importantly, the Great Recession has caused a fundamental change in assessments of economic risks, with consumers now giving greater preference to economic stability relative to economic growth. This is the essential reason that consumers have voiced such positive assessments of such modest prospects for the future pace of economic growth. Overall, consumer spending is expected to increase by 2.6 percent in 2017 and in the first half of 2018."

Favorable Personal Finances
Recently improved finances were reported by 53 percent of all consumers in October, the highest proportion since the start of 2000. When asked to explain how their finances had improved, gains in incomes and wealth were mentioned by the majority of all households.

Two-thirds of all homeowners reported increases in their home's value, and the probability of future stock gains was judged the highest in more than a decade. When asked about their financial prospects for the year ahead, consumers were still quite optimistic. An annual income gain of 2.1 percent was expected in October, up from 1.7 percent last month and 1.5 percent in last October's survey.

Prospect for Economy Brighten
The majority of consumers reported ongoing gains in the national economy in each survey conducted in 2017. Although accelerating gains in economic growth are not anticipated, it still meant that 55 percent of all consumers expected good times in the economy as a whole during the year ahead, and more importantly, 51 percent of all consumers anticipated the expansion would continue uninterrupted over the next five years, Curtin said.

This optimistic outlook was accompanied by nearly seven-in-10 consumers who anticipated small increases in interest rates during the year ahead. The unemployment rate was also anticipated to continue to inch downward during the year ahead.

Consumer Sentiment Index
The Consumer Sentiment Index was 100.7 in the October 2017 survey, up from 95.1 in September and 87.2 last October. The Current Conditions Index was 116.5 in October, above last month's 111.7 and last year's 103.2, and the highest level in seventeen years. The Expectations Index rose to 90.5 in October, above last month's 84.4 and last October's 76.8.

 

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.

Surveys of Consumers
U-M Institute for Social Research