Consumers Are Finding Their Financial FootingConsumer confidence rebounded 2.5 points in March, reversing half of February’s 5-point drop. The month-to-month swings follow a huge 10.7-point jump in January, which sent the Consumer Confidence Index to its highest monthly level since the recession. The composite index has now been above 100 for two of the past three months and the current threemonth average of 101.3 is the best level we have seen since the recession ended nearly six years ago.
All of March’s gain in consumer confidence was concentrated in the expectations series, which rose 6 points to 96.0. The present situation series fell 3 points in March to 109.1. Both series are currently at levels that have tended to support strong growth in consumer spending in the past. Moreover, the present situation series is now comfortably above the expectations series, a shift that has occurred in the second half of previous expansions and tended to coincide with strong growth in consumer spending on big-ticket items and increased home sales.
The present situation series slipped 3 points in March. Both the proportion of consumers responding that jobs were plentiful and jobs were hard to get in March rose by 0.3 percentage points, which left the labor market differential unchanged during the month. The split may be due to the abrupt fall in oil prices, which has led to a surge in layoff announcements in the oil patch. The proportion of consumers stating that present business conditions were bad also rose 2.7 points in March, after trending down during the prior three months. On balance, the present situation series remains consistent with continued improvement in the labor market, but hints that the recent slide in the unemployment rate, which has dropped 1.2 points over the past year, may decelerate a bit.
Caution about the economic outlook is also apparent in the expectations series. While the overall index rose 6.0 points in March, it remains slightly below its January level. The proportion of consumers expecting business conditions to improve over the next six months has fallen for two months in a row, but fewer consumers also expect conditions to worsen. Moreover, the proportion expecting conditions to improve over the next six months remained more than twice as high as those expecting conditions to worsen. Consumers also feel more optimistic about job and income prospects over the next six months.
The latest consumer confidence numbers show more consumers feel the economy and their finances are on a surer footing, which bodes well for spending this spring. Although buying plans have not perked up as much as confidence has, overall consumer confidence has historically been a better predictor of actual spending.
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