A closely watched measure of consumer sentiment rose more than expected in early October, suggesting volatility in financial markets has done little to dampen optimism about the U.S. economy.
The University of Michigan’s preliminary consumer sentiment index for this month rose to 92.1, the first advance in four months, from 87.2 in September. The median projection in a Bloomberg survey called for 89.
The gauge has averaged 93.5 this year, through September, compared with 84.1 in 2014. Consumers polled for the October survey were also the most optimistic about their personal financial expectations since 2007.
According to Bloomberg, the stabilization of financial markets has eased concerns that slowing growth overseas would cause the U.S. economy to cool, even as consumers anticipated smaller increase in payrolls.
“Consumers have concluded that the fears expressed on Wall Street do not extend to Main Street,” Richard Curtin, director of the Michigan Survey of Consumers, said in a statement. “Continued job growth remains the key, especially since consumers have become more concerned that the pace of future job growth will slow.”
Those on the bottom-third of the pay scale projected incomes would rise 2.9% over the next 12 months, the most optimistic outlook since 1999, the report said. The weakening in job prospects occurred mainly among middle-income earners.
At current levels, the Michigan index has historically been consistent with roughly a 4% annualized rate of consumer spending growth, according to economists. Consumer spending in the second quarter grew 3.6% on lower gas prices and higher house prices.
Low inflation combined with cheap borrowing costs have boosted plans to buy big-ticket items, the report noted.
“Perhaps the most important finding is that low inflation and continued job growth have enabled consumers to adapt to a slower and more variable rate of economic growth by varying the pace of their spending without losing confidence that the expansion will continue,” the report concluded.