Summary
Despite dropping trivially at the end of March, consumer sentiment across the United States rose to its highest level since 2004 in the middle of the month. Based on the well-cited University of Michigan’s report, consumers’ satisfaction about the economy was recorded at 101.4 at the end of March, while economists working at Reuters calculated the reading at 102. According to the official report, this index considers people’s attitudes on “personal finances, inflation, unemployment, government policies and interest rates”.
This slight decrease in consumer sentiment was largely driven by the uncertainty surrounding a potential trade war between China and the United States, and it was believed to offset some of the strong, positive reactions arisen from the recent tax reform legislation. In addition, an anticipated increase in interest rates soon, which could potentially be linked to a slowing economy, was also believed to affect consumer sentiment. Richard Curtin, who was responsible for designing and implement this economic survey, stated that consumers understand the potential impacts of a future interest rate hike. He believed that people across the country would pay more attention to precautionary savings, to anticipate for future changes in the economy. It is widely believed that the speed at which interest rate hikes occur, compared to the rate of income growth, would largely affect people’s buying behaviors.
Consumer sentiment in March hits the highest level since 2004
U.S. consumer sentiment slipped slightly at the end of March, after shooting up in the mid-month preliminary report, but still recorded its highest level since 2004.
The University of Michigan’s report showed consumer attitudes about the economy inched down to a reading of 101.4 at the end of March. Reuters economists expected the reading to remain at 102, the same as mid-March, when the index shot up from 99.7 at the end of February.
The index dipped slightly lower at the end of March due to uncertainty about the impact of the proposed trade tariffs, according to the report. Concerns over trade policies offset positive reactions to recent tax reform legislation.
Consumers also anticipate interest rates increasing in the foreseeable future, slowing future economic growth.
“While consumers view the current level of interest rates as still relatively low, they understand that interest rate hikes are intended to dampen the future pace of economic growth,” the survey’s chief economist, Richard Curtin, said in a statement.
“Their reaction will both emphasize borrowing-in-advance of those expected increases as well as heighten their precautionary savings motives.”
Saving versus spending will depend on the pace of interest rate hikes compared with income growth, though income growth is likely to dominate at first, according to the report.
The index measures 500 consumers‘ attitudes on future economic prospects, in areas such as personal finances, inflation, unemployment, government policies and interest rates.
Source: CNBC, Helen Zhao, March 29, 2018. Photo credit to CNBC.