Consumer Sentiment Up, But Few Expect Wage Gains in Year Ahead

A national survey of consumers’ outlook on their finances showed healthy gains from last month and a year ago, but the surge is primarily driven by reduced debt as half of respondents said they expect no economic improvement over the next five years.
The majority of consumers see no wage gains in the year ahead, and the majority expect falling inflation-adjusted incomes.
The closely-watched consumer sentiment index climbed to 74.3 in August 2012, up from 72.3 in July, and well above last August’s 55.8. The August mark beat most economists’ expectations.
The big jump year-to-year of 18.5 Index-points from last August represents a rebound from the “disastrous lows during the debt-ceiling debate” in Congress, according to the University of Michigan-Thomson Reuters’ second and final reading of consumer sentiment in August.
The big driver of consumer sentiment was reduced household debt, instead of any expectations of increases income.
The UM-Reuters index contrasted sharply with the more widely known consumer-confidence index produced by the Conference Board, which found that the attitude of Americans took a big hit in August, dropping to its lowest level since late last year.
The two indicators eventually tend to track closer together over a period of time, but they sometimes diverge in the short term.
“More consumers with household incomes below $75,000 held favorable buying attitudes toward large durable goods than any other time since August of 2007,” according to this month’s UM-Reuters survey of consumers. “Among higher income households, however, these buying attitudes were slightly less favorable in August and remained well below the peaks recorded in 2010 and 2011.”
However, the majority of consumers in August saw U.S. economic conditions staying unfavorable until the start of 2013, and just one-third expected a continuous expansion over the next five years.

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