Trend Reverses, as Sentiment for Households in Bottom Two-Thirds Distribution Gain
The preliminary reading on consumer sentiment for March came in above the consensus forecast at 97.8, up from 95.2 in February. The gain was driven by rising optimism among working families.
The latest results represent a complete reversal as the prior bounce in sentiment was driven by households at the top of the income distribution.
“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 Curtain, Chief Economist for the Survey of Consumers said.
“Sentiment fell among households with incomes in the top third to 98.5 in early March from 101.7 in February.”
Current Economic Conditions rose from 108.5 in February to 111.2 in March, while the Index of Consumer Expectations rose from 84.4 to 89.2.
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.
Next data release: Friday, March 29, 2019 for Final March data at 10am ET
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. Rising income expectations were accompanied by lower expected year-ahead inflation rates, resulting in more favorable real income expectations (see the chart). Moreover, all income groups voiced more positive prospects for growth in the overall economy during the year ahead. Since households with incomes in the top third account for more than half of all consumer expenditures, cautious observers will conclude that the latest data are another indication that the end of the expansion is on the distant horizon. While that may well be true, the current level of consumer sentiment at 97.8 hardly indicates an emerging downturn; even among households with incomes in the top third, the Sentiment Index is 98.5, and 97.4 in the bottom two-thirds.
Richard Curtain
