Consumer confidence in the U.S. increased in April 2015 to the second highest level in more than eight years as the U.S. grew more positive about its financial future. The University of Michigan said that its final index for the month increased from the level of 93 in March to a level of 95.9 in April 2015.
This is due to a stronger sense of job security and building momentum in wage growth that are helping to encourage confidence, which could encourage consumers to spend instead of saving their paychecks. The lower fuel costs and sustained labor market progress would help keep households upbeat even though the Federal Reserve considers raising interest rates for the first time since 2006.
Consumer confidence is down from its absolute high in the last couple of months, which still shows a clear net pick up recently. Still, the consumer confidence data look steady with consumer spending gaining up.
The sentiment survey current conditions index that accounts for the stock of Americans' views of their personal finances rose to a three-monts high of 107 in April 2015 from 105. The gauge of expectations for the next six months is on the increase as well from 85.3 to a level of 88.8.
Personal financial prospects have improved significantly by showing tremendous growth. In addition, financial gains on the personal finance were expected by 37% of all consumers in April. Moreover, the financial gains are above the 36% recorded in the prior two months and it was the highest proportion recorded since April 2007.
The U.S. is expecting an inflation rate of 2.6% in the next year, which already is down from 3% in March. Over the next five to ten years, it estimates a 2.6% inflation rate compared with 2.8% in the previous month. The Conference Board consumer confidence index dropped to a four-months low of 95.2 in the month of April 2015.
Central bank policymakers are keeping an eye on consumer attitudes in the recent time, ongoing inflation and other triggers of economic health as they weigh the timing of their first increase in the benchmark interest rate since 2006. The economic outlook took a hit this week as a report showed the economy hardly grew in the first quarter expanding at a 0.2% annual rate after showing a 2.2% growth in the last quarter of 2014.
Further, Fed policy makers left open the possibility of increasing interest rates in the second half of the year by devising a plan that the economy’s slowdown is dependent on transitory factors. The central bank repeated that it will raise rates when it sees further labor market improvement and it is reasonably confident that inflation will return to its 2% mark over time.
Bigger pay gains might help price increases get closer to the desired target. Wages and salaries increased by 0.7%, which follows a 0.6% increase in the fourth quarter of 2014 as per the Labor department. The positive performance of the economy gave way to many non-government workers wages to increase by 2.8% last year. This was the biggest advance since the third quarter of 2008.
In the meantime, households would be counting on continued savings from lower gasoline prices to help support their balance sheets. When further explaining the scenario, the average cost of a gallon of regular gasoline was $2.58, which represents the highest mark since mid-December and it is down from last year’s peak of $3.70.
More gains in consumer confidence may convince households to increase spending, which was muted in the first quarter of 2015. Consumption inched up to a 1.9% annualized rate in the first quarter of 2015, which is less than half the ”‹pace prior to three months ago when spending climbed at the fastest rate since 2006. Therefore, the conclusion is that consumer confidence will improve going forward with the improvement in macro indicators.
