American consumers remain upbeat about the national economic outlook but acknowledge current weak conditions, according to the University”s Index of Consumer Sentiment. For the month of January, the index rose to 93, up from 88.8 in December and 81.8 in September. It was the fifth consecutive monthly gain.
The index has been viewed with increased attention in recent months, as investors and market analysts look for signs that the economy may be improving after falling into a slump after the Sept. 11 terrorist attacks. Consumer spending accounts for about two-thirds of the economy.
“Consumers think that the current state of the economy is unfavorable, but that it will improve in the year ahead,” said Richard Curtin, director of the University”s Surveys of Consumers. “The divergence is clearly an indicator that consumers see the economy turning toward recovery and away from recession.”
“Consumers are very optimistic about changes in their financial situation in the year ahead,” despite lowering income gains, growing consumer debt and the likelihood that the Federal Reserve will raise interest rates in coming months, Curtin noted.
“We expect to see interest rates rise, which will cool purchases but not create recession concern,” he said.
John Schmitz, head of equity strategy at Fifth Third Bank in Cincinnati, said he was pleased with the results, as well as Friday”s announcement from the Labor Department that the unemployment rate unexpectedly dropped in January by 0.2 percentage points to 5.6 percent.
“It”s yet another sign the economy is well on its way out of a recession,” he said. He added that future economic prospects now depend on business capital investments, rather than consumer spending.
Curtin shared the same sentiment, stating that this is a unique recession. “Consumer spending never fell from quarter to quarter. We”ll look to business now to get us back to growth,” he said.
Students agree that the economy is certainly showing signs of growth after the Sept. 11 terrorist attacks. But as LSA sophomore Christina Rukstele noted, the economic outlook for the typical college student is different than that of the average American.
“It”s different for college students because for many people here, parents cover the costs,” Rukstele said. “The only time I”m really affected is during the summer when I”m working, but I do feel positive about that.”
LSA sophomore Amy Isaacson agreed. “I do feel that I”m not directly affected because I am a college student, but I have noticed there is a general feeling of hopefulness,” she said.
The Index of Consumer Expectations, a component of the Leading Economic Indicators, also posted a gain in January, rising to 91.3 from December”s reading of 82.3. It has increased 20 percent since September.
The Current Conditions index also showed slight improvement, moving upward to 95.7. But most economists caution against reading too much into the gain, as the survey had a reading of 94.6 in September.