Consumer Sentiment in U.S. Jumps to Highest Level Since 2004

(Bloomberg) -- Consumer sentiment in March unexpectedly jumped to a 14-year high after tax cuts boosted disposable incomes, while new tariffs raised inflation expectations and dimmed the outlook, a University of Michigan survey showed Friday.

Highlights of Michigan Sentiment (March, Preliminary)

  • Sentiment index rose to 102 (est. 99.3) from 99.7 in Feb.
  • Current conditions gauge, which measures Americans’ perceptions of their finances, advanced to 122.8, highest in data back to 1946, from 114.9
  • Expectations measure decreased to 88.6 from 90

Key Takeaways

The advance in confidence should help underpin consumer spending, the biggest part of the U.S. economy, after a report earlier this week showed a sluggish start to the year for retail sales. A tightening labor market, rising home prices and tax cuts enacted in December are supporting optimism among Americans.

At the same time, the direction of sentiment was split. Respondents in the bottom third of household income posted a 15.7-point gain in the index, while the top third recorded a 7.3-point decline. In addition, President Donald Trump’s tariffs on imported steel and aluminum earned unfavorable mentions in the survey at roughly the same rate as favorable mentions of the tax cuts.

Tariffs dimmed respondents’ prospects for the economy and helped raise inflation expectations, according to the report. Also, respondents’ expected gains in incomes in the year ahead fell to 1.8 percent from 2.2 percent. All of the decline in expected income gains came among respondents in the top third of incomes.

Even so, positive sentiment dominated the latest survey: 59 percent of respondents cited recent financial progress, the most since the survey began in 1946, while the share citing income gains rose to a five-decade high.

Official’s Views

“Given that the top third of the income distribution accounts for more than half of all spending, and they are less positive about their future finances and course of the economy, the consumption lull that we’ll experience in the first quarter may persist for another quarter,” Richard Curtin, director of the University of Michigan consumer survey, said on a conference call hosted by Bloomberg. Spending is likely to come back in the second half of the year, he said.

Other Details

  • Consumers saw inflation rate in the next year at 2.9 percent, highest since March 2015, after 2.7 percent the prior month
  • Inflation rate over next five to 10 years seen at 2.5 percent for third straight month
  • 20 percent of respondents, highest since 1990, favored buying durable goods in advance of anticipated price increases

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