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Economics Dept.: Job Growth Shores Up Consumer Confidence

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ANN ARBOR — Confidence remained strong in February due to a record number of consumers who were aware of ongoing increases in jobs, according to University of Michigan economist Richard Curtin, director of the Thomson Reuters/University of Michigan Surveys of Consumers.

February marked the sixth consecutive month of gains in the Sentiment Index as consumers became more positive about prospects for the economy.

“Unfortunately, too few consumers have benefited from the recent job gains to alter their otherwise grim evaluations of their own finances,” said Curtin.  “Most past recoveries have exhibited the same pattern of optimistic expectations about the economy in advance of personal financial optimism, although the current gap is larger and can be expected to last longer than typical due to the length and depth of the downturn as well as the slow recovery that is anticipated.”

Overall, Curtin said, the data indicate that inflation-adjusted personal consumption expenditures can be expected to grow by 2.3 percent in 2012.

News of Job Gains at Record Levels

The highest proportion of consumers in the long history of the surveys spontaneously reported hearing about recent employment gains. When asked about prospective changes in unemployment, consumers were also more optimistic, with the most consumers expecting declines in the jobless rate than anytime since 2004.

Personal Finances Still Dismal

Personal finances remained dismal. More households reported recent income declines than increases, for the 41st consecutive month. Just one-in-four households anticipated financial gains in the year ahead. The majority of households did not anticipate any income increase during the year ahead, for the 28th consecutive month. Just 8 percent anticipated an increase in their inflation-adjusted income during the year ahead.

Consumer Sentiment Index

The Sentiment Index rose to 75.3 in the February survey, just ahead of the 75.0 in January, but slightly below last February’s 77.5. This marked the sixth consecutive month that the Sentiment Index increased from its August low of 55.8, a cumulative gain of 35 percent.

The Expectations Index rose to 70.3 in February, from 69.1 in January but was just below last February’s 71.6.

The Current Conditions Index was 83.0 in February, down from 84.2 in January and last year’s 86.9 due to rising gasoline prices.

“Consumers have shrugged off concerns about rising gas prices, the European crisis, and election year politics, preferring to focus on the favorable impact of job growth,” said Curtin. “A potential threat is that consumers expect too much too soon. Improved job prospects may entice many more people to seek work, easily outstripping the number of new jobs created. While election year politics typically raise economic prospects, it may also increase the negative consequences if the promised gains fail to materialize. While growth prospects for consumer spending have improved, the new pace of gains may only edge up to a brisk walk, at best.”

View the full survey at www.press.sca.isr.umich.edu.

The Surveys of Consumers is a rotating panel survey based on a nationally representative sample that gives each household in the coterminous U.S. an equal probability of being selected. Interviews are conducted throughout the month by telephone. The minimum monthly change required for significance at the 95 percent level in the Sentiment Index is 4.8 points; for Current and Expectations Indices, the minimum is 6.0 points.

Established in 1949, the University of Michigan Institute for Social Research is the world’s largest academic social science survey and research organization, and a world leader in developing and applying social science methodology, and in educating researchers and students from around the world.  ISR conducts some of the most widely cited studies in the nation, including the Thomson Reuters/University of Michigan Surveys of Consumers, the American National Election Studies, the Monitoring the Future Study, the Panel Study of Income Dynamics, the Health and Retirement Study, the Columbia County Longitudinal Study and the National Survey of Black Americans.

ISR researchers also collaborate with social scientists in more than 60 nations on the World Values Surveys and other projects, and the Institute has established formal ties with universities in Poland, China, and South Africa.

ISR is also home to the Inter-University Consortium for Political and Social Research, the world’s largest digital social science data archive. Visit www.isr.umich.edu for more information.

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