Auto Credit Express Blog
September 2, 2008
Slight Rise in Consumer Sentiment May Signal Further Economic Woes
According to the latest Consumer Survey by the University of Michigan, the slight rise in confidence in August could be a temporary pause in the overall decline, rather than the beginning of a rebound.
Finances Dismal Despite Lower Gas Prices
ANN ARBOR. Consumer confidence edged upward in August due to more favorable prospects for the overall economy even though the outlook for personal finances remained grim. “Rather than indicating a shift toward renewed optimism, it is typical for a pause to occur following a steep plunge in confidence. Sometimes the pause occurs at levels very close to the lowpoint, and at other times, the pause was followed by significant additional declines,” according to Richard Curtin, the Director of the Reuters/University of Michigan Surveys of Consumers. The data provide a more compelling case for a temporary pause rather than the first tentative step toward a rebound. “Despite the decline in gas prices, consumers have remained quite negative about their personal financial prospects and expressed the weakest buying plans recorded in thirty years,” noted Curtin. The data still indicate that the pace of growth in consumer spending will fall back toward zero in the 4th quarter of 2008 and in the 1st quarter of 2009.
The Index of Consumer Sentiment was 63.0 in the August 2008 survey, up from 61.2 in July, but substantially below the 83.4 recorded last August and the peak of 96.9 in January 2007. This was the second monthly gain posted by the Sentiment Index, but the cumulative gain of 6.6 Index points pales in comparison with the prior 40.5 point loss. The Index of Consumer Expectations, a closely watched component of the Index of Leading Economic Indicators that is noted for its ability to foreshadow recessions, was 57.9 in the August 2008 survey, up slightly from 53.5 in July, but well below the 73.7 recorded last August and the peak of 87.6 in January 2007.
Surprisingly, it was consumers’ expectations for future economic growth that improved. Nine-in-ten consumers viewed the economy as currently in recession, and just one-in-five expected any improvement during the year ahead. Nonetheless, consumers judged the outlook for the economy less harshly. “Two thirds of all consumers still expected bad times financially in the economy as a whole during the year ahead, but that was down from the peak of three-in-four last May,” Curtin said. Unfortunately, consumers did not anticipate any gains in jobs to result. “Just 5% of consumers expected a falling unemployment rate,” Curtin noted.
The financial situation of American consumers remained dismal. The majority of consumers reported that their finances had worsened for the third consecutive month. This was the first time worsening finances have been reported by the majority of consumers over a three month period in the long history of the surveys. “Record numbers of consumers not only attributed their dismal finances to high food and fuel prices, but outright income declines were reported by the third highest proportion in the past half century,” said Curtin. Moreover, just one in-eight consumers anticipated any gain in their inflation adjusted incomes during the year ahead.
Vehicle buying plans remained dismal, despite the recent decline in gas prices. Purchase plans for vehicles remained near the lowest levels recorded in nearly thirty years. “Two factors caused people to put off buying vehicles: the models available for sale as well as concerns about their ability to buy. High gas prices have left consumers dissatisfied with the fuel efficiency of currently available models. Uncertainty about future jobs and incomes have prompted more consumers to postpone vehicle purchases as well.
The growing impact of the credit crisis on consumer borrowing and the continued declines in home prices have both heightened consumers’ interest in adding to their savings and reserve funds and curtain their discretionary spending.
Richard T. Curtin • Director, Reuters/University of Michigan Surveys of Consumers • Phone 734.763.5224
