Americans Feeling Good About the Economy

By Robert Hughes

The University of Michigan’s Survey of Consumers shows that Americans are feeling good about the economy. The Index of Consumer Sentiment rose to 98.0 in mid-April, up from 96.9 in March and 89.0 in April 2016. Those results translate into gains of 1.1 percent and 10.1 percent, respectively.

The Index of Consumer Sentiment is made up of two sub-indexes, the present-situation index and the expectations index. The increase in the Index of Consumer Sentiment was primarily driven by a strong gain in the current-conditions component. The current-conditions index rose to  the highest level since 2000 and sits about 5 percent below the all-time high. Similarly, the index of consumer expectations, one of the indicators in the AIER business-cycle Leaders Index, rose slightly to 86.9 in April from 86.5 in March. The small gain is likely to keep the trend in the expectations index moving upward and remain a positive contributor to the AIER Leaders Index .

Last month, Richard Curtin, the Survey of Consumers’ chief economist, noted the exceptionally large gap in expectations along political party lines, with Democrats having very negative expectations and Republicans having very positive expectations. This month, Curtin notes, “While partisanship had no impact on the Current Conditions Index (Democrats and Republicans differed by just 0.4 points), the data suggest the beginning of a convergence on the Expectations Index, with the figure for Democrats rising 7% and falling for Republicans by 7%, although the gap still remained an astonishing 50.5 Index points.”

Positive developments in the labor market underlie in part the impressive performance of the current-conditions index. This morning, the Bureau of Labor Statistics’ reported weekly initial claims for unemployment insurance—also a component of the AIER Leaders index—fell by 1,000 to 234,000, pushing the four-week average to 247,250. That level of claims is on par with levels last seen in the 1970s. Even more impressive is that when measured as a share of employment, claims are well below any previous cycle low.

Today’s data add further support to the argument that a strong labor market is helping drive consumer sentiment and consumer spending. The data also suggest that the AIER Leaders index is likely to continue at favorable levels and that the outlook for economic growth remains positive, with little probability for a recession in the coming months and quarters.

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Robert Hughes

Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.