Consumer Sentiment Jumps in March as Outlook Improves for Lower-Income Households

Retailers have reason to be optimistic about the months ahead: U.S. consumer sentiment has been higher than expected in March, which could give shoppers reason to spend.

The University of Michigan’s monthly Survey of Consumers found that consumer confidence rose to 98.4, from last month’s 93.8, recovering from its January slump. While the 35-day partial government shutdown and stock market volatility at the beginning of the year shook the public’s assurance in the economy, this latest data shows that attitudes have since improved.

The figure, released Friday, is higher than the 97.8 that economists had forecasted and sits slightly above the average of 97.2 recorded in the past 26 months.

The gains were skewed, however, to households in the bottom two-thirds of the income spectrum, while the index fell by 1.1 points among higher-income households. The impact of the tight labor market was felt by consumers at every level, though, with the share of households reporting income gains reaching its highest level since 1966.

“Rising incomes were accompanied by lower expected year-ahead inflation rates, resulting in more favorable real income expectations,” said Richard Curtin, the Survey of Consumers chief economist. “Moreover, all income groups voiced more favorable growth prospects for the overall economy.”

The researchers also released a breakdown of the results by political party, showing a significant disparity between how self-identified Democrats, Independents and Republicans perceive the state of the economy. In March, for instance, the index of consumer sentiment was 75.7 among Democrats, 98.9 among Independents and 121.9 among Republicans. Similarly, expectations for the future of the economy ranged widely, with Republicans expressing far more optimism than Democrats.

Data collected during previous administrations show a much less dramatic gap, though sentiment also tended to be higher among members of the ruling party.

“The size and influence of political ideology on economic expectations represents a significant change that is consistent with the selective transformation from market mechanism to policies based on fairness, equity, and moral sentiments,” said Curtin. “The selective perceptions of economic developments is likely to continue to shape people’s judgements about the economy long past the current administration … [which] may be responsible for slower spending growth than could have been anticipated based on the average level of consumer expectations alone.”

In other words, retailers may be contending with the fallout of political polarization for years to come.

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