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Consumer optimism surges due to lowered standards

Partisan divide to lessen in months ahead

Consumers continued growing more optimistic in March, however much of the increasing sentiment is due to changed evaluative criteria, according to the Survey of Consumers conducted by the University of Michigan.

The Index of Consumer Sentiment came in at 96.9 in March, an increase of 0.6% from February’s 96.3 and 6.5% from 91 in March 2016, according to the survey. This is slightly lower than the beginning of the month, when the index increased to 97.6.

“The continued strength in consumer sentiment has been due to optimistic views on three critical components: higher incomes and wealth, more favorable job prospects, and low inflation expectations,” Surveys of Consumers Chief Economist Richard Curtin said. “All of these factors, however, have been influenced by partisanship.”

“Democrats expect an imminent recession, higher unemployment, lower income gains, and more rapid inflation, while Republicans anticipate a new era of robust growth in incomes, job prospects, and lower inflation,” Curtin said. “It is a rare situation that combines increasing optimism, which promotes spending, and rising uncertainty which makes consumers more cautious spenders.”

Consumer optimism increased 1.5% from February in Current Economic Conditions, up from 111.5 to 113.2. This indicates an increase of 7.2% from last March’s 105.6.

The Index of Consumer Expectations held steady from February at 86.5, but increased 6.1% annually.

This surge in optimism follows other increases including renewed optimism among lendershome builders and even other measures of consumer sentiment.

However, Curtin warns that this increasing optimism is due, in part, to lowered expectations.

“The high prevailing level of sentiment reflects the use of changed evaluative criteria,” Curtin said. “Like economists who have lowered growth prospects, consumers have done the same, and have thus judged lower rates of growth more favorably than they would have in an earlier era.”

“While the partisan divide will likely recede in the months ahead, consumers’ new evaluative standards will resist change,” he said. “In an earlier era, growth of 3.0% was below average and a cause for concern, now growth above 2.5% represents an optimistic outlook.”

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