The Economy

U.S. Consumer Sentiment Hits 14-Year High

The gain reflected a surge in confidence among lower-income households that have benefited from the GOP's tax cuts.
Matthew HellerMarch 19, 2018

U.S. consumer sentiment jumped this month to the highest level since 2004, with all of the gain coming from lower-income households that are benefiting from the Republican tax cuts.

In its preliminary report for March, the University of Michigan said its index of consumer sentiment rose to 102 from 99.7 in February, easily beating economists’ expectations of a reading of 99.3.

Consumer sentiment among households with incomes in the bottom third was up 15.7 points, while the economic assessments of those with incomes in the top third posted a significant monthly decline of 7.3 points.

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Lower-income households “have clearly been bolstered by the tax cuts,” while upper-income households “are much more likely to view the prospect of steel tariffs with some trepidation, as it introduces another element of volatility into the financial markets,” analysts at Wells Fargo said.

The survey’s chief economist, Richard Curtin, said favorable mentions of the tax reform legislation were offset by unfavorable references to the tariffs on steel and aluminum, with each being spontaneously cited by one in five consumers.

The proportion of consumers stating their income had increased over the past year rose 8 percentage points to 47%, while the proportion stating that their income had fallen declined by 4 percentage points to 12%.

“While income gains are still anticipated, the March survey found that the size of the expected income increase returned to the lows recorded in the past year,” Curtin said.

“Among the top-third income households, income expectations fell more and inflation expectations rose more; as these households account for more than half of all consumption expenditures, the data suggest that the relative lull in consumption in the first quarter may persist for another quarter,” he added.

Forty-one percent of consumers expect their household finances to improve over the coming year and 48% expect them to remain the same. Just 11% expect their finances to get worse over the next year.

The index measures consumers’ attitudes on future economic prospects, in areas such as personal finances, inflation, unemployment, government policies, and interest rates.

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