Surveys of Consumers

University of Michigan

June 2002

Consumers remained convinced that the pace of economic growth will slow during the year ahead, and as a consequence the fewest consumers since the start of the year expected any further declines in the unemployment rate. "While consumers have attributed some of their negative views about the economy to a loss of confidence in business and financial firms, thus far the scandals have not been a major determinant of trends in overall consumer confidence," according to Richard Curtin, the Director of the University of Michigan’s Surveys of Consumers.

The Index of Consumer Sentiment was 92.4 in the June 2002 survey, down from 96.9 in May and nearly identical to the 92.6 recorded in June of 2001. The Index of Consumer Expectations, a closely watched component of the Index of Leading Economic Indicators, was 87.9 in June, down from 92.7 in May, and barely above the 86.9 recorded in June of 2001. Although the Expectations Index is well above last September’s low of 73.5, since the start of 2002 it has moved sideward, showing no sustained gain or loss.

It is too early to know the full impact on the economy stemming from the loss of confidence in business and financial firms. "Consumers are still uncertain about whether and how these events will influence future changes in the overall economy or in their own financial situation," according to Curtin. Much depends on the reactions of the firms not directly involved in the scandals. "If firms in an effort to fortify their balance sheets become unduly cautious in their hiring and expansion plans, the resulting decline in job and income prospects will cause consumers to be more cautious spenders," said Curtin.

Although the June survey was the third consecutive month to record rising concerns about future prospects for the economy, it was the first time that consumers indicated that they thought the slowdown would be long lasting. "Consumers lowered their long-term economic outlook, with the proportion that expected uninterrupted growth barely larger than the number that expected some economic reversals during the next five years," according to Curtin. The outlook for slower growth has meant that fewer consumers expect any further declines in the unemployment rate during the year ahead. "While consumers do not expect unemployment to rise significantly, job prospects are now the weakest since the start of the year," Curtin said.

Declines in stock prices were increasingly reported in the June survey by upper income households, and declines in income were more frequently reported by lower income households. As a result, consumers’ assessments of their current financial situation were more negative in June than anytime since the early 1990's. "Nearly equal numbers of consumers reported that their finances had improved as reported their finances had worsened," noted Curtin. Importantly, consumers continued to be optimistic about their financial prospects for the year ahead, with seven times as many households expecting their finances to improve rather than worsen.

Further Information: Richard T. Curtin, Director Phone: (734) 763-5224 E-mail: umsurvey@umich.edu Website: http://www.umich.edu/~umsurvey