Consumer confidence: Volatile stock prices and persistent job and income growth

University of Michigan Surveys of Consumers logoANN ARBOR—The decline in optimism continued to narrow in late September as consumers increasingly concluded that the stock market declines had more to do with international conditions than the domestic economy, according to the University of Michigan (U-M) Surveys of Consumers.

While the September Sentiment Index was at the lowest level in eleven months, it was still higher than in any prior month since May 2007. Moreover, while upper income households recorded the largest initial declines, they also recorded the largest immediate rebound, according to U-M economist Richard Curtin, who directs the Surveys. Conducted by the U-M Institute for Social Research (ISR) since 1946, the Surveys monitor consumer attitudes and expectations. The data are available non-exclusively via Bloomberg.

Overall, the data continue to indicate that consumer spending will continue to expand in late 2015 and 2016, with an average gain in personal consumption expenditures of about 2.9 percent.

“Americans realize that the domestic economy has become more vulnerable to global economic trends,” said Curtin. “Consumers view the recent stock movements as symptoms of global weaknesses, rather than domestic conditions. Although most believe the domestic economy is still largely insulated, they have lowered the pace of job and wage growth that they now anticipate. The true significance of these findings is not the change in their economic prospects, but that consumers now believe that global economic trends can directly influence their own job and wage prospects as well as indirectly via financial markets. While now small, the global economy influence is certain to rise in the future and prompt widespread adjustments by consumers and policy makers.”

International Concerns
The most distinctive aspect of the current mix of economic news was the high proportion of consumers who cited negative reports about the interrelated issues of stock prices or international and trade concerns: these two issues were cited in September by one-in-four households. There were only two other occasions in the long history of the surveys when more consumers unfavorably mentioned stock prices and international trade issues: in 1987 (due to record stock declines) and in 1998 (largely due to record concerns about trade).

Personal Finances
The proportion of consumers who reported worsened finances rose to 32 percent from 25 percent last month. The entire change, however, occurred among households with incomes in the bottom two-thirds of the distribution. Households in the top income third reported continued progress, largely due to much more favorable net income trends (10 percentage points above August), and fewer reported declines in net household wealth. This result was not due to net changes in assets but to near record net declines in household debt among upper income households.

Consumer Sentiment Index
The Sentiment Index was 87.2 in the September 2015 survey, down from 91.9 in August, but above last September’s 84.6. The largest decline was in the Expectations Index, which fell in the September survey to 78.2 from last month’s 83.4, but remained above last year’s 75.4. The Current Conditions Index was 101.2 in September of 2015, down from 105.1 in August, and above last September’s 98.9.

About the Surveys
The Survey 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 6.0 points.

Contact
Diane Swanbrow: swanbrow@umich.edu, 734-647-9069
Surveys of Consumers, umsurvey@umich.edu, 734-763-5224

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