Consumer confidence takes off in May

ANN ARBOR, Mich. — A rising stock market and higher home prices prompted consumers to report their most improved financial situation in more than five years, according to University of Michigan economist Richard Curtin, director of the Thomson Reuters/University of Michigan Surveys of Consumers.

Consumer confidence

The surveys, conducted by the U-M Institute for Social Research since 1946, monitor consumer attitudes and expectations.
The May gain was largest among upper-income households (incomes above $80,000), although gains were recorded across all income groups.

The overall mix of economic news recently heard by consumers was the most positive it has been in the past 10 years, leading households to adopt the most improved outlook for the national economy since 2007.

News

Importantly, the most common news item that consumers mentioned hearing was about rising employment, cited by one-third of all consumers. Moreover, consumers also expressed the most expansive buying plans since 2007.

“The surge in consumer confidence is exactly the type of economic jump-start the Federal Reserve intended to result from its aggressive policies. To be sure, consumers still expressed concerns with their financial prospects, especially about income gains over the longer term.

It will take actual and repeated income increases rather than simply a renewed optimistic outlook for consumers to permanently revise their income expectations upward. This will occur as consumer spending gains encourage firms to end their hesitancy about hiring, and as higher tax revenues ease concerns over the Federal deficit putting any additional tax increases on hold.”

For the first time in five years, more consumers reported their finances had improved rather than worsened, with recent income gains the most common reason.

Moreover, 25 percent of high-income consumers spontaneously mentioned gains in their household wealth, including increases in the value of their homes and stock holdings as well as reductions in their debts.

Although income prospects also improved, the gains were much more modest: no income gains were anticipated by 54 percent of all households and by 45 percent of families with income above $80,000.

Buying plans

Buying attitudes toward household durables improved to the highest levels since mid-2007 and vehicle-buying attitudes were at the highest level since mid-2005.

Assessments among homeowners of the current value of their homes were the most favorable since 2007. Although the expected annual increase in home values did not change among all homeowners, among households with incomes above $80,000, the annual expected increase was the highest recorded since 2007.

Importantly, the recent run-up in home prices may have encouraged some homeowners to wait for additional gains before selling their current home to buy another.

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