Economy Watch: Are Consumers Really Optimistic?

While some metrics point to continued optimism among consumers, others show them being more cautious as uncertainty remains.
Source: University of Michigan Surveys of Consumers
Source: University of Michigan Surveys of Consumers

The University of Michigan’s Consumer Sentiment Index edged upward in late February, though it remained slightly below the decade peak recorded in January. The index came in at 96.3 at the end of February, which puts it higher during the past three months than anytime since March 2004.

Normally, according to Surveys of Consumers Chief Economist Richard Curtin, the implication would be that consumers expected the election to have a positive economic impact. That’s not the case this time around, since the gain represents the result of an unprecedented partisan divergence, with Democrats expecting recession and Republicans expecting robust growth, he explained.

While the University of Michigan and the Conference Board both reported that consumers are still optimistic, other metrics point to less certainty on the matter. For instance, late last week the Census Bureau reported that new home sales for January came in at 555,000 units on an annualized basis. That was below the consensus forecast, and the three previous months were all revised down.

One thing optimistic consumers do, or at least want to do, is buy housing, which in turn stimulates some kinds of retail sales. So perhaps consumers aren’t quite as optimistic as reported, or at least they are feeling the squeeze of semi-stagnant wages and high residential real estate prices.