Consumer sentiment continued its slow decline in April due to weakening expectations for future economic growth, although their views of their current finances remained positive. The top concerns of consumers involve whether the anticipated slowdown in economic growth will lead to a slower income and job gains, and the rise in uncertainty about future economic policies depending on the outcome of the election. Consumers have hedged these concerns by upping their savings in the 1st quarter in each of the past three years, while still powering the expansion forward. Overall, the data indicate that real consumption will grow by 2.5 percent in 2016.
“The retreat from the 2015 peaks was evident across a wide range of expectations about prospects for the national economy,” says Surveys of Consumers chief economist, Richard Curtin. “The size of the decline, while troublesome, is still far short of indicating an impending recession. The decline is all the more remarkable given that consumers’ assessments of current economic conditions, including their personal finances, have remained largely unchanged at very positive levels during the past year. This divergence may reflect the strength of the consumer relative to the business sectors, and exacerbated by growing uncertainty about the economic policies advocated by various presidential candidates.”
Personal Finances Recently improved finances were cited by 45 percent in April, and just 11 percent anticipated that their financial situation would worsen during the year ahead. Income gains were reported by 37 percent of all consumers, not much below the decade high of 40 percent in January 2015. Consumers, however, were somewhat more guarded about their future financial prospects, including the size of expected income gains as well as the pace of new job creation. While the majority of consumers still anticipate higher incomes and expect the unemployment rate to remain as low or even lower than at present, their optimism about income and job prospects has weakened during the past year.
Diminished Pace of Economic Growth Expected
Although half of all consumers reported that the economy continued to improve, when asked about prospects for the year ahead, consumers were less optimistic. While not expecting a downturn anytime soon, consumers have increasingly concluded that even the modest gains during the past few years may be difficult to repeat in the years ahead. These concerns may be temporary and improve along with the economy in the balance of the year.
The Sentiment Index was 89.0 in the April 2016 survey, down from 91.0 in March and 95.9 last April. All of the April decline was in the Expectations Index, which fell to 77.6 in April from last month’s 81.5 and last year’s 88.8. In sharp contrast, the Current Conditions Index rose to 106.7 in April from 105.6 in March, and just nearly equal to last year’s 107.0.
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