The University of Michigan | |||||||||||
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News and Information Services News Release |
412 Maynard Ann Arbor, Michigan 48109-1399 | ||||||||||
October 29, 2001 Consumer confidence up slightly; gain seems temporary
ANN ARBOR---The latest consumer survey, from the University of Michigan Institute for Social Research, indicates that consumer confidence rose slightly from last month, but the small gain is likely to prove temporary. "Even though consumers were not as grim as late last month, the overall level of confidence is quite low and still indicates the economy is falling into a recession," according to Richard Curtin, the director of the U-M’s Surveys of Consumers. The majority of consumers still expected bad times in the economy as a whole during the year ahead, expected the unemployment rate to be the highest since the early 1990's, and anticipated that next year’s income increases will be the smallest in more than a decade.
The Index of Consumer Sentiment was 82.7 in the October survey, just above 81.8 in September, but well below the last October’s 105.8. The Index of Consumer Expectations, a closely watched component of the Index of Leading Economic Indicators, was 75.5 in October, just ahead of the 73.5 in September, but well below last October’s reading of 100.7. Both indices are at their lowest levels since the early 1990's.
To be sure, not all recent developments were negative. Most consumers expected very low interest rates and a near zero inflation rate during the year ahead. "The zero interest rates offered by vehicle manufacturers were viewed by consumers as a deal too good to miss, as only the 1986 interest rate incentives were cited more frequently," noted Curtin. Consumers expected an inflation rate of just 1.0% during the year ahead in the October survey, with nearly half of all consumers expecting no increase in prices. "Consumers now hold the most favorably inflation expectations since 1960," says Curtin.
Low inflation helped soften the impact on living standards from the smaller income gains most consumers now expect. One-third of all consumers reported that their financial situation had worsened in October, marking the most negative assessments in nearly ten years. One-in-four households cited declines in income as the primary reason, and consumers expected income gains of just 1.7% for the year ahead, the smallest annual increase expected since the early 1990's.
Vehicle purchase plans brightened as lower interest rates have temporarily offset concerns about job and income prospects, but plans to purchase appliances, furniture, home electronics, and other household durables remained unchanged at decade lows. "The zero interest rate on vehicles is seen as a once in a lifetime opportunity. Consumers want to reap these savings and still stay within their even tighter budgets by cutting more deeply into other purchases," according to Curtin.
Eight-in-ten consumers judged the economy in decline in October, a level only recorded during prior recessions. While consumers expected the pace of growth to improve after the start of 2002, the majority did not anticipate that the pace of growth would be sufficiently strong to restore good times in the economy as a whole. Six-in-ten consumers expected the unemployment rate to increase during the year ahead, a level which has only been exceeded twice in fifty years, and both times large increases in the actual unemployment rate followed.
Contact: Richard T. Curtin, Director | |||||||||||