Two recent snapshots of consumer sentiment and spending have found that despite high inflation, consumers are more optimistic about the economy and they continue to spend.
A University of Michigan survey released April 14 showed what an economist called “a surprising” jump in consumer sentiment of 10.6% in early April, although the figure remained below January’s number, according to a news release.
“Nearly the entire gain was in the Expectations Index, which posted a monthly gain of 18%, including a leap of 29.4% in the year-ahead outlook for the economy and a 17.2% jump in personal financial expectations,” said Richard Curtin, chief economist for the survey.
A strong labor market and expectations that high gas prices will fall helped to boost respondents’ expectations for the economy.
“Consumers still anticipate that the national unemployment rate will inch downward, acting to improve consumers’ outlook for the national economy,” Curtin said. “Perhaps the most surprising change was that consumers anticipated a year-ahead increase in gas prices of just 0.4 cents in April, completely reversing March’s surge to 49.6 cents. Retail gas prices have fallen since the March peak, and that fact was immediately recognized by consumers.”
The consumer sentiment data released April 14 is preliminary. The University of Michigan will release final data for April on Friday, April 29, and those results could paint a less rosy picture, Curtin cautioned.
“There are still significant sources of economic uncertainty that could easily reverse the April gains, including the impact on the domestic economy from Putin’s war, and the potential impact of new Covid variants,” Curtin said.
At the same time as the University of Michigan released its initial data, the Bank of America Institute reported credit and debit card spending rose 11% in March over the same month in 2021, a pattern that continued into early April.
“Consumers’ finances, particularly of those in lower income groups, are holding up, contrary to findings of sentiment surveys about the impact of higher prices,” according to a news release. In announcing the numbers, the banking institute also pointed to the strong labor market as giving consumers confidence. “Elevated cash levels in checking and savings accounts” also have helped consumers feel comfortable spending more freely, according to the release.
Bank of America reports credit and debit card spending was up 15% in the first eight days of April, compared with the same period in 2021. And its ACH, wire and person-to-person payments rose 26%, year over year, during those first eight day of the month. In addition, consumers continue to have money to spend. Households with annual incomes less than $50,000 have $1,500 more in their checking and savings accounts than in 2019, the release said.
“While sentiment surveys show that consumers are inclined to cut back in response to higher prices, people don’t always do what they say they are doing,” said David Tinsley, senior economist for the Bank of America Institute.