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A popular measure of consumer sentiment in the US rose to its highest level in a year as stimulus checks and faster vaccine rollouts juiced optimism for a full economic recovery.
The University of Michigan’s Index of Consumer Sentiment climbed to 84.9 from 76.8 this month, according to data published Friday morning. That exceeds the median estimate of 83.6 from economists surveyed by Bloomberg. The reading is the highest since March 2020 and snaps a two-month streak of declines.
The university’s gauge of current economic conditions rose to 93 from 86.2, also hitting a one-year high. The index of consumer expectations gained to 79.7 from 70.7, fully returning to its year-ago level.
The bulk of the improvements were linked to the $1.9 trillion stimulus package passed earlier this month and the improved rate of vaccination, Richard Curtin, chief economist for the university’s surveys of consumers, said in a statement. A majority of respondents reported hearing news of strong gains in the economy.
The relaxing of lockdown measures should further lift sentiments and give way to strong business activity, Mahir Rasheed, associate economist at Oxford Economics, said.
“The reopening service sector will support healthier labor market conditions while absorbing part of the burst in consumer spending this year,” he added.
Americans’ expectations for near-term inflation moderated but remained elevated, according to the university’s survey. Respondents now see inflation climbing to 3.1% over the next year, down slightly from 3.3% in February. Inflation expectations can serve as a self-fulfilling prophecy for real inflation, as businesses tend to lift prices and consumers often push for higher wages when bracing for stronger inflation.
That price growth will largely be fueled by Americans’ readiness to get out and spend. Peoples’ impatience with lockdowns reached a one-year high in the March survey, underscoring the surge of demand likely to be unleashed on the economy. While consumer spending is set to soar into the summer, the pandemic will likely leave some lasting pressures on activity, Curtin said.
“Despite the vast decline in precautionary motives sparked by the easing of pandemic fears, those precautionary motives will not completely disappear,” the economist said.
The Friday data joins other encouraging signs from the past week. Weekly jobless claims fell to an unadjusted 684,000 last week, marking their lowest point of the pandemic-era. The reading was well below economist estimates. Continuing claims, which track Americans currently receiving unemployment benefits, also fell more than expected.
Separately, Federal Reserve Chair Jerome Powell reiterated on Thursday that, while far from complete, the recovery is moving faster than expected.
“We welcome this progress, but will not lose sight of the millions of Americans who are still hurting, including lower-wage workers in the services sector, African Americans, Hispanics, and other minority groups that have been especially hard hit,” the central bank chief added.
Preliminary consumer sentiment data in April is scheduled for release on April 16 at 10 a.m. ET.