Survey Casts Doubt on Consumer Confidence Improvement

In the continuing news trend that consumers are feeling more confident about the U.S. economy, the Reuters/University of Michigan consumer sentiment index rose in late April. It increased from 69.5 mid-month to 72.2 at the end of April. That beat expectations of a smaller rise to 71.0. This data point is an important revelation, because the index fell earlier this month. While the reversal appears to confirm other economic data points indicating better consumer spending, it remains something of an outlier.

Earlier this week, we learned that the Conference Board's consumer confidence reading jumped this month, so it was strange that the Reuters/U Michigan index was down in early April. Although it was positive in the month's second half, overall, the index was ultimately lower over the entire month, moving from 73.6 in late March to 72.2 in late April. It also remains well below its long-term average in the high 80s.

The Reuters/U Michigan index appears to contradict all of the other positive news about increasing consumer sentiment and spending. Yet as first quarter GDP clearly shows, consumers are definitely spending more, so their sentiment must be improving. But mixed measures can still be useful to consider. The disparity between this index and other readings likely indicates that the recovery isn't likely to be a steep one. A clear, rapid recovery wouldn't allow for any doubt. Certainly, some consumers are feeling more confident, but many remain pessimistic as they continue to struggle.

The survey's chief economist, Richard Curtin, explains this point:

Consumers think the recovery is well underway, although most think it will be distressingly slow and have little immediate impact on their finances.

Sentiment and spending increases face the prospect of a worrying plateau if the labor market recovery is too slow. If that happens, economic growth will be stagnant.