Index of Consumer Sentiment Increases 4% Month-Over-Month and 23% Year-Over-Year in April 2021

The University of Michigan (U of M) has posted the final results of their April 2021, Index of Consumer Sentiment. The Index of Consumer Sentiment increased to a value of 88.3, which is 4% higher month-over-month (MOM) and 23.% higher year-over-year (YOY). The current Economic Conditions increased to a value of 97.2, which is 4.5% higher MOM and 30.8% higher YOY. Finally, the Index of Consumer Expectations increased to a value of 82.7, that is 3.8% higher MOM and 18.0% higher YOY. In remarks prepared for the release of the report U of M Survey of Consumers chief economist said, “the April survey recorded continued gains in consumer confidence due to a growing sense that the upward momentum in jobs and incomes will persist. The renewed confidence is due to record federal stimulus spending, both recently passed and proposed, as well as the positive impact from a growing share of the population who are vaccinated. The largest and most important change in April was that an all-time record number of consumers expected declines in the unemployment rate during the year ahead. Even if a booming economy resulted in higher inflation, consumer optimism would not diminish since consumers have already anticipated a temporary increase. Overall, the data indicate an exceptional outlook for consumer spending through mid-2022. The size and persistence of the spending gains depend on continued job growth as well as wages that effectively draw people back into the labor force. Home buying conditions slipped only modestly in April in spite of an all-time record number of complaints about high home prices (38%-see the chart). The natural tendency of higher prices is to lessen demand, but this reaction will be overwhelmed by strong growth in jobs and incomes. Rising home prices and rising incomes create the most fertile soil for the growth of inflationary psychology.