March Consumer Sentiment Index Tops Consensus

The final University of Michigan Consumer Sentiment Index for March increased month over month from a February reading of 97.8 to March’s level of 98.4. When the preliminary March index score was reported earlier this month, the index was unchanged from the final February reading.

The final reading is 3% lower than the final all-time record high March 2018 index score of 101.4.

Economists polled by Bloomberg were expecting a March reading of 97.8.

The March subindex reading for expectations was higher compared to February and flat compared to March 2018. The month-over-month index of current conditions was higher but the year-over-year reading was lower.

The month-over-month consumer expectations subindex rose 5.2% from 84.4 to 88.8, and the current conditions subindex increased from 108.5 to 113.3 (up 4.4%).

Year over year, the current conditions subindex dipped 6.5%, and the consumer expectations subindex was flat.

Reported income gains were cited by 47% of all consumers, matching the June 2018 reading; a higher proportion was last cited in 1966 (50%, the all-time peak).

The survey’s chief economist, Richard Curtin, said:

Consumer confidence rebounded in March to 98.4 from last month’s 93.8, slightly above the average of 97.2 recorded in the past 26 months. The March gain in the Sentiment Index was entirely due to households with incomes in the bottom two-thirds of the income distribution, posting a gain of +7.1 Index-points, while households with incomes in the top third fell by 1.1 Index-points. Middle and lower income households more frequently reported income gains than last month, although income gains were still widespread among upper income households. Indeed, the last time a larger proportion of households reported income gains was in 1966.

Rising incomes were accompanied by lower expected year-ahead inflation rates, resulting in more favorable real income expectations. Moreover, all income groups voiced more favorable growth prospects for the overall economy. While no further decline in interest rate expectations was recorded in March, the data suggest that consumers anticipated additional increases in 2019. Finally, it should be noted that too few interviews were conducted following the summary release of the Mueller report to have any impact on the March data; if there is any, it may affect the April data. Overall, the data do not indicate an emerging recession but point toward slightly lower unit sales of vehicles and homes during the year ahead.