Consumer sentiment reaches 15-year high

U.S. consumer confidence reached its highest point in 15 years last month, according to the University of Michigan’s consumer sentiment index. The index was 102.4 in May – a significant hike from 97.2 in April.

The consumer sentiment index has not eclipsed 100 since January 2004, when the index posted a value of 103.8. This drastic rise quantifies consumers’ current attitudes towards the economy and their faith in the future of the economy.

Consumer confidence indices rebounded after the government shutdown and consequential instability of the stock market. Plus, because of the increase in jobs and subsequent rise in wages, people have more money in their pockets to spend and save. Hence, consumers have more money to spend on goods today, and they have more money to spend tomorrow.

The University of Michigan index is comprised of two parts: the index of current economic conditions and the index of consumer expectations. Month-to-month, the index of current economic conditions increased by just 0.1 percent, whereas the index of consumer expectations jumped by 9.8 percent. In other words, consumers are content with the current state of the economy, and their optimism for their economic future skyrocketed.

“Of the two indexes, the overall index is very important. If consumer sentiment is positive, people are spending money. But if the expectation index is good, that’s even better,” said economist Alan Maguire. “If I think the current situation is good, for example, I buy a steak and eat it, and it’s done. But if expectations are good, I buy a car because I can pay it off.”

Because consumers are confident about both the current and future state of the economy, the U.S. is in a much healthier place than it was in 2004. By spending on goods today and investing in their future with durable goods like remodeled houses and new cars, consumers are exhibiting healthy optimism about their financial futures.

“The character of the overall sentiment is better than it has been in other times.” Maguire said. “If you think about 2004, specifically in a place like Arizona, that was all the bubble. People were building houses like crazy, but that went away. The character of this recovery compared to the early 2000s is very, very different. This is a very sort of slow, steady growth rate. That’s a much more positive thing for the long run — much more stable, much more predictable, much more reliable.”

The University of Michigan conducted the survey before trade talks between China and the U.S. came to a halt, so that could certainly contribute to a decline in consumer sentiment in the coming months.

But as of now, the U.S. consumer is as confident as ever. “People think the good times are here, and they’re here to stay,” Maguire said.