Consumer Sentiment Lifts in Final August Reading

After a poor reading earlier in the month, consumer sentiment in August recovered more than expected, despite concerns about the economy's future direction.

The University of Michigan/Thomson Reuters Index of Consumer Sentiment climbed to 82.5 in the final August reading, slightly better than July's final value of 81.8 but a sharp upturn from a mid-month reading of 79.2.

For nine months now, the index has remained largely unchanged, moving in a range between 80.0 and 82.5.

"The stability in consumer expectations during the past nine months has helped to insulate the economy from much larger swings in business investments," said Richard Curtin, director of the monthly sentiment survey. "At the same time, the problem is that confidence has been unable to rise above those modestly positive levels.

"This reflects the ability of the Fed to raise asset prices, which has primarily benefitted upper income households, and their inability to prompt wage increases, which has prevented the reestablishment of a more broadly based optimism," he continued.

Indeed, 59 percent of households with incomes in the top tier reported being better off now than they were before, while only 36 percent of those in the lower tiers said the same. At the same time, 34 percent of the top-income households reported net income gains, while there were no net gains reported in the bottom two-thirds.

"To be sure, all households have benefited from the resurgent economy," Surveys of Consumers said in its report, adding that the data point to a 2.5 percent increase in consumer spending in the year ahead.

The index component measuring consumer feelings about current conditions rose 4.8 percent over the month to 99.8, its highest since July 2007.

Meanwhile, the expectations component of the index dropped 3.3 percent to 71.3.