Consumer sentiment improved a notch in March, as Americans continued to expect inflation to improve and a strong economy has helped ease worries over high prices.
Those are key takeaways tied to the University of Michigan’s consumer sentiment index, which moved up to 79.4 from 76.5 month over month – an increase that fell within the margin of error. Measurements of both current conditions and future expectations also moved up, to 82.5 and 77.4 from 79.4 and 75.2, respectively.
“Critically, consumers exhibited confidence that inflation will continue to soften,” said Joanne Hsu, Surveys of Consumers director for the university. “Assessments and expectations of personal finances improved modestly from last month, as the perceived negative effects of high prices and expenses on living standards eased.”
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“Overall, sentiment is essentially unchanged throughout the first quarter of 2024, remaining just shy of the midpoint between the pre-pandemic level of sentiment and the historic trough from June 2022,” Hsu added.
Earlier Thursday, the government released its final estimate of gross domestic product for the fourth quarter of 2023, with economic growth increasing to 3.4% from the prior 3.2% number. Meanwhile, the stock market is wrapping up its best quarter since 2019.
“Thursday’s GDP print affirms the strength of the economy in the final months of 2023 and helps to justify the stock market’s move higher throughout 2023, since the market typically moves ahead of the economy,” said Jeremy Straub, CEO and chief investment officer at Coastal Wealth.
“The economy grew at a healthy clip in the final months of 2023, which is notable given how grim so many economic forecasts were for 2023,” Straub added. “The economy was resilient throughout 2023 and that resilience is expected to continue in 2024.”
Hsu also warned Thursday that the recent stability in consumer perceptions could be thrown off as the November presidential election nears.
“As the election season progresses and debates over economic policy become more salient for consumers, their outlook for the economy could become more volatile in the months ahead,” she said.
Yet while economists and policymakers look to the surveys for signals on how consumers might behave, over the past couple of years there has been an increasing disconnect between what consumers say and do. Consumer spending has held up well since the end of the COVID-19 pandemic and has been the main driver of an economy that has outperformed expectations.
Other assessments of the consumer mindset this week also showed an improvement. One examination from Santander Bank of middle-income households found that worries about inflation and a recession within the next year have receded. And the Penta-CivicScience Economic Sentiment Index released Wednesday showed its biggest two-week increase since mid-January as confidence in the overall economy, finding a job and making major purchases all increased.
Vanguard, meanwhile, said Thursday that its proprietary data on 401(k) enrollments shows that hiring picked up in February, with the strongest showing among jobs paying less than $55,000 a year.
The hires rate – a measure of new hiring as a percentage of existing employees – climbed to 2.4% in February 2024, just below its level in June 2023.
“We are seeing a turning point in the data with the recent uptick in hiring,” said Vanguard investment analyst David Pakula. “That said, employers are still hiring at a slower pace than during pre-pandemic times and the tight labor market of 2021 and 2022.”
The housing sector also showed some strength in February, with pending home sales up 1.6% – slightly above estimates for a 1.3% gain after January’s 4.9% drop. The Midwest and South posted increases while the Northeast and West saw declines.
“The high-cost regions in the Northeast and West experienced pullbacks due to affordability challenges,” said Lawrence Yun, chief economist for the National Association of Realtors. “Home prices rising faster than income growth is not healthy and adds challenges for first-time buyers.”
Analysts say the housing market is seeing an increase in the number of homes for sale, a sign that could mean activity will pick up as the traditional spring buying season arrives.
“Both new home sales and pending home sales leveled off compared to December’s surge as mortgage rates picked up steam,” said Hannah Jones, senior economic research analyst for Realtor.com. “However, the number of homes listed for $200,000 to $350,000 increased by 20.6% annually in February 2024, offering options for buyers hoping to secure a home despite climbing mortgage rates.”