The preliminary March results from the University of Michigan Surveys of Consumers show overall consumer sentiment rose in early March, hitting the highest level in a year. Ongoing distribution of vaccines as well as expectations for stimulus were the primary drivers.
Overall consumer sentiment increased to 83.0 in early March, up from 76.8 in February, an 8.1 percent rise and the highest since a reading of 89.1 in March 2020 (see top chart). From a year ago, the index is still down 6.8 percent. The sub-indexes both gained in early March with the expectations component leading the move higher.
The current-economic-conditions index rose to 91.5 from 86.2 in February (see second chart). That is a 6.1 percent gain and leaves the index with a 11.8 percent decrease from March 2020. The second sub-index — that of consumer expectations, one of the AIER leading indicators — jumped 6.8 points or 9.6 percent for the month to 77.5 (see third chart) but is 2.8 percent below the prior year.
All three indexes are still below the pre-pandemic levels, with the Current Economic Conditions index 18.7 percent below its 2018-2019 average and the Index of Consumer Expectations 11.2 percent below the recent average. Combined, the overall index sits 14.6 percent below the pre-pandemic average.
According to the report, “Consumer sentiment rose in early March to its highest level in a year due to the growing number of vaccinations as well as the widely anticipated passage of Biden’s relief measures. The gains were widespread across all socioeconomic subgroups and all regions, although the largest monthly gains were concentrated among households in the bottom third of the income distribution as well as those aged 55 or older.”
The report goes on to add, “The early March gains were not equally shared across all Index components, with consumers voicing no improvement in some key facets of consumer finances. In particular, consumers’ judgements about their own financial situation posted no gains in early March, largely due to very small expected gains in household incomes over the next year. In contrast, prospects for the national economy improved significantly.”
The report adds to the recent run of positive data that show widening vaccine distribution and the easing of government lockdown restrictions are having a positive impact. Continued easing of restrictions is boosting the economic outlook though the cumulative damage done to the economy by the lockdowns is likely to be a headwind and suggests that it may be several more quarters until complete recovery to pre-lockdown conditions. Nevertheless, the economic outlook is growing more positive.