Consumer sentiment bounced back in early March from its start of the year slump thanks to soaring sentiment in households in the bottom two-thirds of the income distribution.
The University of Michigan’s survey of consumers produced a preliminary March reading of 97.8, much higher than 95.2 expected and above the top of the range of economists surveyed by Econoday. The index had been at 98.3 before the government shutdown. It fell to 91.2 in January and posted a smaller than expected recovery to 93.8 in February.
“The early March gain in sentiment was entirely due to households with incomes in the bottom two-thirds of the distribution, whose sentiment rose to 97.4 from 90.0 in February,” Richard Curtin, the survey’s chief economist, said.
Both the index for current conditions and the outlook improved. All income groups voiced more positive prospects for growth in the overall economy during the year ahead, according to Curtin.
Nonetheless, overall sentiment fell among households in the top third of incomes.
“The difference that accounted for the divergence was how households evaluated their personal finances, as lower income households expressed much more positive assessments. The divergence was due to a monthly jump of one-percentage point in income expectations among middle and lower incomes compared to a change of just one-tenth of a percentage point among those with incomes in the top third,” Curtin said.
This could be a tax effect. Top income households are more likely to have felt the effects of caps on state and local tax deductions and mortgage interest deductions.
“The data indicate that real consumption will grow by 2.6% in 2019 and that the expansion will set a new record length by mid year,” Curtin said.
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