JANUARY 2005

Consumer Confidence Rises

In December, the University of Michigan's Index of Consumer Sentiment reached its highest level since the beginning of 2004. Not only did consumers report a more favorable assessment of current economic conditions, their outlook was also positive. As shown in Figure 1, the December index for families with incomes less than $50,000 marked a particularly impressive gain. Figure 2 displays a longer term trend in the index for all families.

In anticipation of additional interest rate hikes in 2005, the December index indicated that consumers plan to purchase homes, vehicles, and other durables. Consumers projected improved prospects for their personal finances in terms of their expected income for 2005. They also reported a favorable outlook for business conditions in the next twelve months and the next five years. This optimism was tempered somewhat by an anticipation of no improvement in the unemployment rate for the coming year. Dr. Richard Curtin, the director of the University of Michigan's Survey Research Center summed up the December survey results by noting that "[i]f the current level of confidence is sustained in the months ahead, the data would indicate a robust gain of 3¾% in consumer spending in 2005."

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