Consumer Sentiment Strong; Attitudes Positive Toward Wage Gains, Homebuying

Slow economic growth in Q1 has not put a damper on consumer sentiment or consumer confidence, according to recent reports from the University of Michigan and the Conference Board.

The University of Michigan Index of Consumer Sentiment reached 95.5 for the first quarter of 2015, its highest level in more than 10 years (since the third quarter of 2004). While the index declined month-over-month within the quarter from 95.4 in February to 93.0 in March, the index still rose substantially year-over-year from its March 2014 level of 80.0.

Consumer finances, though they pulled back slightly in March from January and February, were still judged more favorably in the first quarter than they have been at any time post-recession, according to the survey. Those under age 45 and in households with incomes in the top third expected the highest gains, while the largest improvements in the last year occurred in middle income households and among the 45 to 64 age group. The only losses in consumer sentiment occurred in lower income households, due to their sensitivity to higher utility costs and disrupted work hours, according to the survey. Analysts have repeatedly pointed to strong wage growth as a necessity for housing recovery.

While consumers remained positive toward homebuying conditions in the latest survey, the reason for the positive outlook has shifted – prospective homebuyers are now dependent on low mortgage rates as opposed to low home prices. In Q1 2015 surveys, the percentage of consumers citing low home prices was at its lowest level since 2006, while the percentage of consumers who cited low mortgage rates was at a 10-year high.

"The harsh winter weather and the small rebound in gas prices caused some slippage in consumer confidence since the start of the year," said Richard Curtin, Surveys of Consumers Chief Economist. "Nonetheless, expanding job opportunities as well as more favorable wage gains have meant that consumer spending will strongly rebound during the balance of the year."

Meanwhile, the Conference Board Confidence Index for March, released Tuesday, jumped from 98.8 in February to 101.3 in March. While consumer assessment of current economic conditions declined for the second month in a row, the percentage of consumers expecting higher incomes rose by two full percentage points from 16.4 percent in February up to 18.4 percent in March.

"Consumer confidence improved in March after retreating in February," said Lynn Franco, Director of Economic Indicators at the Conference Board. "This month’s increase was driven by an improved short-term outlook for both employment and income prospects; consumers were less upbeat about business conditions. Consumers’ assessment of current conditions declined for the second consecutive month, suggesting that growth may have softened in Q1, and doesn’t appear to be gaining any significant momentum heading into the spring months."