Final April 2021 Michigan Consumer Sentiment Improves

Written by Steven Hansen

The final University of Michigan Consumer Sentiment for April came in at 88.3, up from the preliminary of 86.5, up from March’s 84.9, up from February’s 76.8.

The Econoday consensus range was 86.5 to 90.1 (consensus 87.1)

Surveys of Consumers chief economist, Richard Curtin, makes the following comments:

The April survey recorded continued gains in consumer confidence due to a growing sense that the upward momentum in jobs and incomes will persist. The renewed confidence is due to record federal stimulus spending, both recently passed and proposed, as well as the positive impact from a growing share of the population who are vaccinated. The largest and most important change in April was that an all-time record number of consumers expected declines in the unemployment rate during the year ahead. Even if a booming economy resulted in higher inflation, consumer optimism would not diminish since consumers have already anticipated a temporary increase. Overall, the data indicate an exceptional outlook for consumer spending through mid-2022. The size and persistence of the spending gains depend on continued job growth as well as wages that effectively draw people back into the labor force.

While temporary price hikes are anticipated, the robust increases in consumer demand will act to lengthen and heighten inflation above the modest increases now anticipated. It will be a challenge to fine-tune fiscal and monetary policies that allow inflation to modestly exceed the 2% target for a limited time without contributing to an underlying upward momentum in inflation. Home buying conditions slipped only modestly in April in spite of an all-time record number of complaints about high home prices (38%-see the chart). The natural tendency of higher prices is to lessen demand, but this reaction will be overwhelmed by strong growth in jobs and incomes. Rising home prices and rising incomes create the most fertile soil for the growth of inflationary psychology. While it is critical to first secure robust and equitable economic growth, contingency plans are urgently needed to avoid declining inflation-adjusted incomes and surging interest costs.

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