Consumer confidence posts a significant gain in September

October 1, 2012

Consumer confidence improved substantially in September due to more favorable prospects for the national economy, according to University of Michigan economist Richard Curtin, director of the Thomson Reuters/University of Michigan Surveys of Consumers.

The Surveys, conducted by the U-M Institute for Social Research, have been monitoring and expectations for more than 60 years.

Consumers expect the economy to create more jobs in the year ahead, according to Curtin. The overall rise in confidence was aided by higher as well as rising home values.

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However, the majority of consumers still anticipate very small wage gains and expect somewhat larger price increases during the year ahead, due largely to rising . This means that half of all households anticipate declining living standards as their incomes fail to keep pace with inflation.

Low mortgage rates have reinvigorated home buying, Curtin said. Just as importantly, people's reluctance to sell their current home to buy another home also has receded. Virtually every homebuyer cites low mortgage rates and low prices. While those same low prices are seen as a drawback for home sellers, that disadvantage has shrunk to its lowest level in the past five years. Although indications for home sales are positive, the data suggest that the recovery in the housing market will be slow and halting.

Positive Economic Growth Expected

Curtin said that twice as many consumers now expect the economy to continue to expand as anticipate renewed economic declines. In the September survey, more consumers spontaneously reported hearing news about job gains and expected continued job gains during the year ahead. When specifically asked about prospective changes in the , the highest number of consumers in the past six months expect declines in unemployment.

Consumer Sentiment Index

The Sentiment Index was 78.3 in September 2012, up from 74.3 in August, and well above last August's 59.5. The outsized year-to-year gain of 31.6 percent reflects a rebound from the disastrous lows during the debt ceiling debate. More important were the monthly gains, Curtin said, especially the gain in the Expectations Index, which rose to 73.5 in September from 65.1 in August. In contrast, the Current Conditions Index slipped to 85.7 in September from 88.7 in August, but remained above the 82.7 recorded in July 2012.

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