Stimulus Could Help Boost Consumer Sentiment

University of michigan, consumer confidence index, sentiment, pandemic, economy

American consumers are growing more confident as news of stimulus funds and vaccines have helped to boost consumer sentiment, according to a University of Michigan (U-M) monthly report released on Friday (March 12).

U-M’s preliminary sentiment index increased to 83 from 76.8 in February, the new data shows. The Index for Current Economic Conditions hit a new one-year high to 91.5, up from 86.2 last month. The Index of Consumer Expectations also increased, reaching 77.5, up from February’s 70.7. The survey was conducted from Feb. 24 to March 10.

“The data indicate strong growth in consumer spending during the year ahead, with the largest percentage gains for services, including travel and restaurants,” Richard Curtin, chief economist for U-M’s surveys of consumers, said in the report. “Half of all consumers in early March reported hearing of favorable economic developments, with the largest positive gains involving jobs.”

The largest monthly confidence gains were among households in the lowest one-third of income brackets and among people aged 55 or older, the report indicated. 

Not every metric was positive. Consumers’ confidence about their own financial situations stayed the same, as many respondents said they didn’t expect incomes to increase this year. Inflation expectations remained high, although many said they expected the rate to contract in the long run. People surveyed also said they expected interest rates on mortgages and car loans to go up over the course of the year.

The overall confidence boost is partly from the continuing and expanding rollout of COVID-19 vaccines, as well as President Joe Biden’s appeal to state agencies to ensure that vaccinations are available to every adult by May 1. The $1.9 trillion stimulus package and news of checks rolling into households’ bank accounts and mailboxes have further helped to boost optimism.

Although the gains are still below 2020’s pre-pandemic levels, the sentiment index came in higher than the median forecast of 78.5 that economists surveyed by Bloomberg had predicted.

The country’s third round of COVID-19 stimulus payments is in the midst of distribution after being signed into law by Biden on Thursday (March 11). Individuals will get direct payments of $1,400 if they earn below $75,000 annually or if their household income is not more than $150,000. 

Economists at Goldman Sachs said on Monday (March 8) that the current 6.2 percent unemployment rate should drop to 4.1 percent by the end of the year. U.S. economic recovery is on track to blow past China’s rebound. The world economy is anticipated to grow by about 6 percent.