Consumers are still on edge about proposed trade tariffs, however despite this fear, consumer sentiment in March rose to its highest level since 2004, according to the Survey of Consumers conducted by the University of Michigan.

The Index of Consumer Sentiment rose 1.7% from 99.7 in February and 4.6% from 96.9 in March 2017 to 101.4 in March this year.

“Consumer sentiment at month's end was marginally below the mid-month reading due to uncertainty about the impact of the proposed trade tariffs,” Survey of Consumers Chief Economist Richard Curtin said. “The Sentiment Index, however, still reached the highest level since 2004, and the Current Conditions Index set a new all-time peak.”

“Importantly, all of the March gain in the Sentiment Index was among households with incomes in the bottom third, up 14.1; those in the middle third were unchanged, while the Index fell among households in the top third, down 5.6,” Curtin said. “Households with incomes in the top third cited significantly greater concerns with government economic policies than last month, especially trade policies, with net references falling from +31 to just +1, offsetting their positive reactions to tax policies.”

An article by Jill Mislinski for Advisor Perspectives explains what this confidence level means historically:

The Michigan average since its inception is 85.4. During non-recessionary years the average is 87.6. The average during the five recessions is 69.3.

“The consensus expectation among consumers is that interest rates will increase in the foreseeable future,” Curtin said. “While consumers view the current level of interest rates as still relatively low, they understand that interest rate hikes are intended to dampen the future pace of economic growth. Their reaction will both emphasize borrowing-in-advance of those expected increases as well as heighten their precautionary savings motives.”

The Current Economic Conditions index increased to 121.2 in March. This is up 5.5% from 114.9 in February and up 7.1% from 113.2 in March 2017.

The Index of Consumer Expectations, however, fell slightly from the previous month, moving down 1.3% from 90 in February to 88.8 in March. But this is still up 2.7% from 86.5 in March 2017.

“The trade-off between spending and saving will crucially depend on the pace of future interest rate hikes compared with the pace of income growth,” Curtin said. “It is likely that income growth will initially dominate, tilting consumers' motives more toward spending than saving. Overall, the data are consistent with a growth rate of 2.6% in consumption from mid-2018 to mid-2019.”