Consumer Sentiment Hits Five-Year High

Two weeks ago, we wrote in FER Fortnightly, “The fiscal cliff looms, worries about the fate of the Euro and European sovereign debt continue and everyone is uncertain about political environments everywhere. But American consumers clearly became more upbeat in September….”

Last Friday, Kathleen Madigan of the Wall Street Journal wrote, “Political intransigence could drag the U.S. back into recession, the euro-zone debt crisis drones on, and gasoline prices have topped $5 a gallon in California. Yet consumers are partying like it’s 2007.”

In the mid-month reading released Oct. 12, The Thomson Reuters/University of Michigan Consumer Sentiment Index jumped again to 83.1 from 78.3 in the final September reading and 74.3 in August. It’s the highest mark for the index since September ’07.

The consumer confidence gain comes on top of an unexpected drop in the U.S. unemployment rate in the August employment report, released by the Bureau of Labor Statistics Oct. 5. The unemployment rate fell to 7.8%. And while job gains in August were a very moderate 114,000, the BLS revised upward the jobs gains in June and July, while noting an increase in the number of those seeking employment and a drop in discouraged workers.

UM Surveys of Consumers said consumers felt better about both the long-term and short-term economic outlook. “What changed was how (consumers) evaluated economic conditions,” said Surveys of Consumers Chief Economist Richard Curtin. He said more consumers expected conditions to be good next year and also over the next five years. The research group’s Expectations and Current Conditions Indexes also rose sharply.

Consumers’ buoyancy contrasts sharply with that of many economists and business leaders. A recent survey by The Business Roundtable reported that chief executive officers’ confidence plummeted to its lowest level in three years, putting it on a par with that immediately following the U.S. recession.