Consumer Sentiment in March Reaches its Highest Level in a Year

The University of Michigan Surveys of Consumers chief economist, Richard Curtin, is reporting that Consumer Sentiment continued to rise in late March, reaching its highest level in a year due to the third disbursement of relief checks and better than anticipated vaccination progress. As prospects for obtaining vaccination have grown, so too has people’s impatience with isolation, as those concerns were voiced by nearly one-third of consumers in March, the highest level in the past year. The majority of consumers reported hearing of recent gains in the national economy, mainly net job gains. The data clearly point toward robust increases in consumer spending. The ultimate strength and duration of the spending surge will depend on the rate of drawdowns in savings since consumers anticipate a slower pace of income growth. Despite the vast decline in precautionary motives sparked by the easing of pandemic fears, those precautionary motives will not completely disappear. Curtin notes that each side in the current policy debate finds support in the consumer data: the recovery is far from complete as only 45% of the fall in the Sentiment Index has been recovered, and the current and prospective stimulus and infrastructure spending has the potential to spark an inflationary psychology. The key issues are not to underestimate the ultimate impact of economic policies on employment and inflation, and not to overestimate the ability of economic policies to bring any excesses to a painless soft-landing.