American Consumers Are Getting Bullish on the US Economy

Consumer spending counts for close to two-thirds of the American GDP, the highest ratio by far among the developed world

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Panos Mourdoukoutas
Apr 16, 2021
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American consumers are getting bullish on the U.S. economy, according to a report from the University of Michigan on Friday morning.

The University of Michigan's consumer sentiment for the U.S. was 86.5 in April 2021, up from 84.9 in March.

Though trailing market expectations of 89.6, the April figure was the highest reading since March 2020, reflecting improving current economic conditions and steady future economic prospects.

The University of Michigan consumer sentiment report comes a day after two U.S. government reports that justify the bullish consumer sentiment. One of the reports showed a 9.8% increase in March retail sales from February and up 27.7% from a year earlier. It was the most significant increase since May 2020, beating the consensus market forecast of 5.9%. The other report showed that more Americans got back to work. Initial unemployment insurance claims dropped to 576,000 for the week of April 10 from 769,000 in the previous week.

Bullish sentiment among American consumers is an essential condition for helping the U.S. and global economy stage a sustainable recovery from the Covid-19 recession. U.S. consumer spending counts for close to two-thirds of the American gross domestic product, the highest ratio by far among the developed world.

That's why marketers around the world closely follow statistics that take the pulse of the American consumer. They are also monitored by financial markets as consumer spending boosts both the top and bottom lines of the publicly traded companies that serve consumers.

Still, bullish consumer sentiment may have a negative side to financial markets. It can fuel inflation, as was indicated in the April Michigan consumer sentiment survey. Year-ahead inflation expectations jumped to 3.7%, the highest level in nearly a decade, and well above the Federal Reserve target of 2%.

Rising inflation may turn a bullish consumer sentiment from a tailwind to a headwind if it gets out of control and forces the Federal Reserve to raise interest rates sooner rather than later.

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I’m a Professor of Economics at LIU Post in New York. I also teach at Columbia University. I’ve published several articles in professional journals and magazines, including Forbes, Barron’s, The New York Times, Japan Times, Newsday, Plain Dealer, Edge Singapore, European Management Review, Management International Review, and Journal of Risk and Insurance.