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US Consumer confidence has reportedly rebounded in March according to the latest survey by the University of Michigan released on Friday. After a two-year low seen at the beginning of the year due to the government shutdown and other factors, sentiment has risen to 97.8 vs 95.3 expected.

Key Takeaways

• The UoM’s measure of consumer sentiment rose from 93.8 in February to 95.3 in January.
• Consumer sentiment had hit a two-year low in January with a reading of 91.2.
• Consumer spending accounts for approximately 70% of the US economy, making the survey an important and often market-moving economic indicator.

The rise in consumer sentiment over the last two months is encouraging, pointing to increased confidence following the government shutdown and the nine-year low in retail sales seen in December, which can now be considered as an outlier rather than a trend-setting incident.

According to the survey, which comprises responses from 500 sources, “the early March gain in sentiment was due to households with incomes in the bottom two-thirds of the distribution, whose sentiment rose to 97.4 from 90.0 in February.”

Among households with incomes in the top third to 98.5 to 101.7, sentiment dropped. The difference is reportedly due to the ways in which households assessed their own finances, with more positive sentiment coming from low-income households regarding personal finance in March.

Rising Income expectations plus lower inflation rates contributed to a positive outlook on earnings in the near-future for low-income households. 

Influential Demographics Hold Negative Sentiment

It’s important to bear in mind that households in the top third of the income bracket account for over half of all consumer spending, making the negative sentiment reported among this demographic regarding personal finances more weighted.

The University of Michigan acknowledged this, stating “cautious observers will conclude that the latest data are another indication that the end of the expansion is on the distant horizon.” However, the survey statement also adds that an economic downturn is not indicated in the strong reading of 97.8.

All income groups had a positive outlook for the growth of the economy for the year ahead, and among high-income households, the overall sentiment index came in at 98.5 with a reading of 97.4 for the bottom two thirds of the income bracket.

The survey states that “the data indicate that real consumption will grow by 2.6% in 2019 and that the expansion will set a new record length by mid year.”

The index is actually still down when compared to other years on an annual basis.

Sri Thiruvadanthai, Director of Jerome Levy Forecasting Center, pointed out that such long-term negative readings are often recessionary indicators.

There have been only 3 times where it has suffered worse declines but we did not have a recession.

There is always a bearish indicator somewhere. Michigan Consumer Sentiment Survey's current conditions component--I only care about this component--is down significantly yoy. There have been only 3 times where it has suffered worse declines but we did not have a recession. pic.twitter.com/p7MIzGmeA7

— Sri Thiruvadanthai (@teasri) March 15, 2019

Market Reaction

Gold has held gains from earlier in the session and is now trading up 0.75% at $1,303.15/oz, testing the session high of $1,306.30/oz and leaving the session low of $1,294.22/oz behind.

Gold broke $1,300 once again today, likely spurred on by reports of increased inflationary pressures and yet more poor performance in the manufacturing industry. April Comex Futures are also doing well, up 0.76% and trading at $1,305.00/oz.