Consumers are Pragmatic but Optimistic

The University of Michigan's Index of Consumer Sentiment slipped a bit in August but remained above levels witnessed one year earlier. In another sign of a slowing economy, consumers reported the smallest income growth in more than three years in the August, 2000 survey conducted by Michigan's Survey Research Center. Net income changes have been declining since the start of the year. Nevertheless, consumers view this situation as temporary; job prospects are still viewed favorably and 46 percent expected their finances to improve during the year ahead. This level is just three percentage points below the all-time peak and the fourth highest figure recorded in the survey's fifty-year history. Consumers expect lessening inflation pressure in the year ahead (which seems consistent with the latest available economic data). About 60 percent of all consumers in the August survey expect interest rates to rise during the coming year, but that's down from 78 percent as recently as May, 2000.

How does this translate into spending plans? The August survey found improved vehicle buying attitudes, mostly due to discounts being offered by manufacturers. Attitudes toward purchases of household durable goods (furniture, appliances, home electronics) also remained very favorable. Just 5% of consumers mentioned high prices as a factor in their attitudes toward purchase of household durables, and less than 5% complained about high interest rates.