Less Affluent Households Give Consumer Sentiment a Boost
Sentiment rose in late September and was higher than predicted by the economists surveyed by Bloomberg, who had forecast a final reading of 67 for the month, but it's still slightly lower than August's 68.9 reading, and substantially lower than the 76.0 high reached in June. In addition, September's consumer sentiment numbers varied substantially depending on the incomes of the responders.
"The entire late September gain ... was among households with incomes under $75,000 while upper income households reported much less favorable economic prospects," Richard Curtin, director of surveys for the Thomson Reuters/University of Michigan Surveys of Consumers, told Reuters.
Curtin suggested that the split between the two income groups was partly due to concern over the failure of Republicans and Democrats to agree on an extension of the Bush tax cut for families with incomes higher than $250,000.
Economists, business executives, and policymakers monitor consumer sentiment because, historically, consumer attitudes have been correlated with consumer decisions to spend. In general, rising consumer sentiment leads to increases in consumer spending, or the maintenance of a level of spending, while falling consumer sentiment foretells the reverse. And historically, consumer spending has accounted for 65% to 70% of U.S. GDP.
August Personal Income, Real Consumer Spending Rise
Separately, the U.S. Commerce Department announced Friday that personal income rose 0.5% and real consumer spending increased 0.2% in August. Further, with income rising faster than spending, Americans were able to save more: The U.S. savings rate rose to 5.8% in August from 5.7% in July.
Also, the current conditions component rose to a final September reading of 79.6 from the 78.4 preliminary September reading, and above August's 78.3 tally.
In addition, the 12-month economic outlook rose to a final September reading of 61.0 from the 59.0 preliminary September reading. Even so, the September reading is eight points lower than August's 69.0 reading.
The one-year inflation outlook declined to 2.2% in September from 2.7% in August; the five-year inflation outlook dipped to 2.7% from 2.8%.
Taken together, the consumer sentiment and personal income/consumer spending reports show a U.S. consumer whose fiscal condition and attitude toward the economy are getting slightly better. Even so, both sentiment and spending remain at low levels. Economists will need to see a substantial reduction in the nation's 9.6% unemployment rate before they can feel confident that Americans' attitude toward the the economy and toward making purchases has improved in a sustained way.