Consumer Sentiment Gains Ground After March Drop

Consumer Spending Also on Rise, But Economists Fear Too Slowly

by Adam Hilliard on July 26, 2011

Consumer sentiment rose in May 2011, almost two points more than had been expected. This comes after a steep drop to 67.5 in March following another rise in the price of gasoline. The trend also follows a continued rise in consumer spending after it dipped far below average during the recession.

By surveying consumers in each state, researchers at the University of Michigan create their Consumer Sentiment Index. The index measures the overall confidence consumers feel about their income and the economy as a whole.

Many economists do not see the news as entirely good however. While people may be feeling better about their money, the damage that has been done has not fully seen the light of day. The Commerce Department, which compiles consumer spending statistics, noted that despite rising, a 0.4 percent increase is not very substantial. Couple that with the fact that consumer savings were at their lowest level, 4.9 percent, since 2008, and there may be trouble.

According to Joel Naroff, president of Naroff Economic Advisors, “That is a sign that people are dipping into their piggy banks to keep driving. Consumers are trying to spend money but the higher price of goods and services has limited their ability to do that.”

A persistently high unemployment rate has only exacerbated matters, causing many to downgrade their projections for the summer. For those with jobs, raises and promotions have been hard to come by.

There may be some good news though, as the price of gasoline is expected to fall over the summer, even dropping noticeably over April and May. According to Michael Feroli, a J.P. Morgan Chase economist, “Presumably the easing in gas prices has contributed to the firming in sentiment, which is now back to the level at which it began the year.”

Consumer sentiment, also referred to as consumer confidence, may be enough to bolster the economy in the coming months. This will depend on a number of factors, however, including the price of gas, food and other commodities which can be very volatile.

Consumer spending, despite being historically low, is still 2.2 percent higher than the same time in 2010. The index of consumer sentiment is also higher than it was in 2010, though only by less than a single point. The U.S. may be exiting the recession, but at a snail’s pace.

Adhering to industry best practices and educating consumers about payday loans, CashAdvance.com has been furnishing consumers with quick cash since 1997.