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Consumer Sentiment Falling Despite Rosy Economic Forecast

Consumer confidence consumer sentimentWhile Fannie Mae's February 2015 Economic Outlook released on Thursday predicted a boost for housing this year based on strong economic growth, consumers may not be quite convinced, based on two consumer sentiment indices released this week.

The University of Michigan/Thomson Reuters Index of Consumer Sentiment released Friday tumbled down to 95.4 for February after reaching its highest level in 11 years, 98.1, in January. Even with the month-over-month decline, however, February's reading was still at its highest level in eight years and still much higher than the 81.6 reported for February 2014.

"The underlying strength that has kept confidence at high levels has been job gains," said Richard Curtin, chief economist for the Survey of Consumers. "While buffeted by harsh weather and lower gas prices, consumers have remained focused on gains in jobs and wages. Consumers intend to increase their spending during the year ahead, but they also want to keep a tight rein on their debt as well as to increase their precautionary savings. Few consumers believe that gas prices will not increase in the future, and even fewer think the economy will no longer suffer downturns. Without more robust wage increases, consumers will increasingly condition their spending on the availability of reduced prices."

Many economists and analysts have insisted that robust wage growth among Americans is needed to facilitate a complete recovery in housing – and particularly needed among milliennials, those ages 25 to 34, who are the key to household formation.

The U.S. Bureau of Labor Statistics Employment Summary released in early February reported an average hourly wage gain of 12 cents month-over-month, from $24.63 to $24.75. Still, U.S. Treasury Secretary Jacob Lew said after that report was released that more wage growth is needed in order for the economy, and hence the housing industry, to recover.

"Over the last year, we've seen average wages going up, a little over 2 percent," Lew said in an interview with CNBC earlier this month. "We need more wage growth than that for people to really feel it, but it's something to be that's starting to be something that's a trend in the right direction. I think we've got to do everything we can to help drive that trend forward."

The University of Michigan Index is not the only consumer index released this week that saw a decline, however. The Conference Board Consumer Confidence Index, released earlier this week, took a dive in February down to 96.4 after hitting 103.8 in January. In fact, consumers' outlook was less optimistic in February than in January across the board – Conference Board data for the month indicated declines in consumers' appraisal of current conditions, optimism about the short term outlook, and the outlook for the labor market – despite recent reports from the Obama Administration proclaiming that the labor market is at its healthiest since the turn of the century.

"After a large gain in January, consumer confidence retreated in February, but still remains at pre-recession levels (September 2007, Index, 99.5)," said Lynn Franco, Director of Economic Indicators at the Conference Board. "Consumers' assessment of current conditions remained positive, but short-term expectations declined. While the number of consumers expecting conditions to deteriorate was virtually unchanged, fewer consumers expect conditions to improve, prompting a less upbeat outlook. Despite this month’s decline, consumers remain confident that the economy will continue to expand at the current pace in the months ahead."

 

About Author: Seth Welborn

Seth Welborn is a Harding University graduate with a degree in English and a minor in writing. He is a contributing writer for MReport. An East Texas Native, he has studied abroad in Athens, Greece and works part-time as a photographer.
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