Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=163784
Story Retrieval Date: 7/22/2014 2:20:48 AM CST
Consumer confidence has reached its highest level since September 2008, another sign that the economic recovery is underway.
The Conference Board Inc.'s Consumer Confidence Index rose 5.6 points in April to 57.9 from 52.3 in March. The survey uses 1985 as a base year of 100.
It’s good news for everyone from homebuilders to store owners because higher confidence should result in more sales and consumer spending accounts for about 70 percent of gross domestic product.
“It’s self-fulfilling where consumers are feeling more confident as they spend,” said James Dion, a consultant with Dionco Inc. in Chicago. “They spend more and businesses buy more inventory, hire more staff, which in turn feeds the economy.”
Bolstering confidence is better news from the media, Dion added. He said Americans are consumers at heart.
The Consumer Confidence Index is based on a survey of a representative sample of 5,000 U.S. households done for The Conference Board by survey firm TNS. The index measures consumer concerns regarding business conditions and the stability of the labor market.
The survey's Present Situation Index increased to 28.6 from 25.2, while the Expectations Index improved to 77.4 from 70.4.
Robert Barsky, a professor of economics and a faculty associate at the survey research center at the University of Michigan, said he doubts whether the substantial change from March to April is what it seems. “It could be that it’s not even statistically significant,” Barsky said. “What we’re seeing is simply that the recession is generally over, and people are responding to that.”
Andy Ricker, a Chicago resident who works in legal services, said he’s not spending more. “I can’t feel the economy getting better. Jobs are in short supply,” he said. “I don’t care what economists say. My corporation has issues in that they’re not giving raises.”
The economy has not recovered, said Thaddeus Compall, an attorney from the northwest suburbs. But he said his family is generally spending the same, by cutting back on entertainment and eating-out expenses. “Living in my area, it’s a middle-class neighborhood where people are still out of work. There’s a lot of people in the construction business,” he said. “People are retrenching further.”
The persons polled who said business conditions are “good” rose to 9.1 percent from 8.5 percent a month earlier, while those who said business conditions are “bad” declined only slightly to 40.2 percent from 42.1 percent.
The economy has been helped by tax relief legislation, said Scott Testa, an economics professor of Cabrini College in Philadelphia. “This is the first time home-buyers assistance from the federal government has driven the economy.”
Psychologically, people feel the economy is at the tail end of this recession, Testa said. “We’ve seen other numbers in check such as inflation and the sentiment is certainly more positive than it was a year and a half ago. People are less afraid of losing their jobs,” he said.
Consumers' outlook improved from March. Those anticipating improved business conditions over the next six months increased to 19.8 percent from 18.0 percent.
The rising Consumer Confidence Index runs counter to a preliminary report on consumer sentiment released by the University of Michigan, based on a survey conducted in mid-April, showing that sentiment declined from March to April.
While the two surveys ask similar questions, the sentiment survey is conducted via phone, while the confidence survey is conducted with written questionnaires given to more people. The full consumer sentiment report will be released Friday.
“There may not be a very statistically significant difference between last month and this month, there’s a lot of noise from month to month,” Barsky said.
The survey also suggests that while consumers are more optimistic about the job outlook, the proportion of consumers expecting an increase in incomes declined to 10.3 from 10.8 percent.
“I don’t know anyone who has received a pay increase,” Compall said.
People are still nervous, Testa said. “The big lagging indicator in any economy is usually the unemployment rate and it still hasn’t moved that much. Those indicators make people generally hesitant in some ways.”