Consumer Sentiment: Confused

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Consumer Sentiment: Confused


NATIONAL REPORT -- The Reuters/University of Michigan Consumer Sentiment Index rose 0.9 point to reach 76.2 in March, while The Conference Board's Consumer Confidence Index inched down 1.4 points for the same month.

The Reuters/University of Michigan index found that economic conditions improved by 3 points to 86.0, while the economic outlook index fell 0.5 point to 69.8. Inflation expectations for the coming year shot up 3.9 percent in March from 3.3 percent in February, while five-year inflation expectations rose 3 percent.

Commenting on the sentiment index results, Chris G. Christopher Jr., senior principal economist for IHS Global Insight, said: "The news on the consumer front has been mostly positive. The unemployment rate is now standing at 8.3 percent, job prospects are looking brighter, food price increases have eased, the stock market is feeling good and heating bills are lower due to unseasonably warmer weather. The big downer is pump prices. If pump prices were not rearing their ugly little head, consumer mood would be brighter."

Meanwhile, The Conference Board's Consumer Confidence Index inched down 1.4 percent in March, however, its present situation index increased 4.6 points as its labor index (the percentage of respondents who think jobs are plentiful minus the percentage of respondents who think jobs are hard to get) has remained at negative 31.6 for two months in a row.

The Conference Board's expectations index, however, fell 5.4 points, and average inflation expectations for the coming year surged to 6.3 percent in March, from 5.5 percent in February.

"More Americans are feeling optimistic on their current economic situation, despite rising gasoline prices," noted Christopher. "Consumer mood is still at relatively higher levels due to an improving labor market. However, rising gasoline prices are starting to take their toll on the consumer psyche, and there is often a disconnect between how people say they feel and what they do."

Christopher said Americans feel that labor market conditions in March were the same as in February. But there has been a notable increase in pessimism of job prospects six months hence. And, oddly enough, more Americans expect to buy a car, a home or a major appliance within six months.

Rising gasoline prices have a large influence on where consumers think prices will be one year ahead despite the fact that gasoline expenditures are less than 4 percent of disposable income. Average consumer inflation expectations one year ahead surged in March to 6.3 percent from a 5.5-percent reading in February. Fortunately, consumer inflation expectations are typically not very good predictions of actual inflation -- what they expect and what actually happens are two different things, according to Christopher.