Consumers Still Confident of the Economy : Survey Indicates Strong Big-Ticket Spending
Despite a small decline from the second quarter, consumer confidence continued at a high level in the third quarter amid indications that spending will continue for cars, houses and households because of lower interest rates and favorable prices, according to a University of Michigan survey released Monday.
The quarterly survey, based on 2,000 interviews nationwide conducted by the university’s Institute for Social Research, showed that consumers expected slow but sustained economic growth in the year ahead, accompanied by low rates of inflation and only small increases in the unemployment rate.
The survey results dispute the contention of some analysts that consumers, after a three-year spending binge, are so deeply in debt that they will begin to cut back on spending. Consumer debt is currently running at a record 19% of income.
The university’s index of consumer sentiment--a scale on which February, 1966, equals 100--was 92.8, compared to 94.3 in the second quarter and 98.9 a year ago. It was the 10th consecutive quarter with the index in the 90s and the longest period of consumer optimism at that level since the 1960s.
Diminished Prospects
“Since the upward momentum in consumer sentiment has now been exhausted,” survey director Richard T. Curtin said, “these results point toward diminished but still favorable prospects for consumer demand in 1966.”
Separately, Beryl W. Sprinkel, chairman of the President’s Council of Economic Advisers, also predicted that consumer spending will continue to fuel an economic recovery. He said that Americans will keep buying--during this Christmas season and into next year--despite the record levels of personal indebtedness.
“The record of consumers’ ability to handle debt is extremely high,” he said in an interview with the Associated Press. “We will have a good Christmas season this year because income is still rising and inflation is still low.”
Kathleen M. Cooper, a senior vice president and economist at Security Pacific National Bank, said she was not surprised by the underlying consumer confidence reflected in the Michigan survey.
“People have been building financial assets significantly over the last couple of years. The thing that people get so nervous over is the debt-to-income ratio, which has a lot of odd parts that can’t be used all too well to figure out what the consumer will do.”
Cooper noted that the consumer debt figure today includes five-year auto loans versus three years in the past and reflects increased use of credit cards instead of checks. “A lot of these items are less useable to gauge how strapped consumers are,” she said.
In the third quarter, 72% of all families surveyed had favorable attitudes toward buying conditions for large household durable goods. Attitudes on home buying set a record at 71%, while attitudes on auto purchases remained unchanged at a record 67%, which was set in the second quarter.
Among all families surveyed, 55% expected good times financially in the economy as a whole during the year, down from 63% last year. Only 25% expected the economy to improve, down from 33% a year earlier and the all-time peak of 52% in the second quarter of 1983.
