Despite improvements in their own financial situations, consumers’ optimism for the economy fell back slightly in March, with trends suggesting subdued interest in major purchases such as homes.
According to a report released by Thomson Reuters [1] and the University of Michigan’s Survey Research Center [2], consumer sentiment retreated last month to an index reading of 80.0, down 2 percent from February’s 81.6 but an improvement on last year’s 78.6.
The headline index was negatively impacted by 3.7 percent decline in the Index of Consumer Expectations to a value of 70.0. The decline more than offset a slight 0.3 percent nudge in the Current Conditions Index to a reading of 95.7.
“While consumers anticipate that the national economy will continue to grow during the year ahead, they have become increasingly concerned about the ability of the economy to avoid a downturn sometime in the next five years,” the joint report read.
The most immediate concern, according to the survey, is the ongoing slowdown in home value gains—one that is expected to continue in the year ahead. Given the stall in price improvements and the increase in interest rates over the last year, plans to purchase homes are reportedly on the decline.
“Since consumers have become accustomed to very low interest rates on loans, even small increases, which simply tempered demand in the past, could now have a much more pronounced impact on sales of homes and vehicles,” said Richard Curtin, chief economist for the survey.
Curtin added that with consumers now reacting to even small rate hikes, “[t]he Fed now has a more powerful policy tool as well as a less forgiving tool to a policy misstep.”