Ann Arbor, MI, June 27-- The University of Michigan’s Index of Consumer Sentiment was 89.7 in the June 2003 survey, down from 92.1 in May but well above the 77.6 recorded in March.
The entire June decline was in the expectations component as consumers’ views of current economic conditions were unchanged.
The Index of Consumer Expectations, a closely watched component of the Index of Leading Economic Indicators, was 86.4 in June, down from 91.4 in May, and significantly above the 69.6 recorded in March.
Consumers have reluctantly concluded that the post-war bounce in economic activity will not be as strong as they had originally anticipated, according to Richard Curtin, the Director of the University of Michigan’s Surveys of Consumers.
"While consumers still expect the economy to improve, they now anticipate a pace of economic growth that will be too slow to reduce unemployment anytime soon," said Curtin. The small loss in confidence does not indicate the start of a more substantial decline but a consolidation of gains after a prolonged period of uncertainty. "Confidence is still well above the level recorded three months ago, and consumers can be expected to gradually increase the pace of their spending during the year ahead," noted Curtin.
Consumers reported hearing of more positive economic developments in June, including increases in stock prices, tax cuts, lower interest rates, and lower inflation. News of recent job losses, however, still remained quite common. "Twice as many consumers expected the economy to improve in June as three months ago.
The pace of economic growth was expected to be slow, and thus keep the unemployment rate at high levels for an extended period of time," according to Curtin. Twice as many consumers expected the unemployment rate to inch upward in the months ahead rather than to immediately decline. "Renewed growth in jobs and wages is critical to insuring sustained gains in consumer spending," Curtin said.
The tax cuts have not restored confidence in government economic policies to promote renewed growth in jobs. "Confidence in economic policies edged downward in the June survey, remaining at the lowest levels recorded since President Bush first entered office," according to Curtin.
Declines in inflation helped to support favorable personal financial expectations, and lower interest rates have promoted positive home and vehicle buying attitudes. "Although families still report a good deal of financial distress, nearly half of all households expected their living standards to improve during the year ahead largely due to lower inflation," Curtin said.
Although one-third of all consumers expected no increase in prices during the year ahead, very few consumers anticipate that the economy is moving toward deflation—a sustained decline in the overall level of prices. "While all consumers look for price discounts when shopping, consumers also view prospects for deflation quite negatively. Consumers think that deflation would be accompanied by higher unemployment, smaller wage gains, and slower economic growth," Curtin noted.
