Consumer sentiment rose to 83.7 in May, the highest since July 2007, according to a report by Bloomberg.
The Thompson Reuters/University of Michigan Surveys of Consumers, also called the Consumer Sentiment Index, surveys approximately 500 people each month and asks five questions to assess their attitude toward the economy as a whole. Recent survey results from the Conference Board also point to growing consumer confidence in the economy, a noticeable improvement over prior months, and the highest in years.
The overall economic picture has improved since last month when the numbers were released, and brightened considerably since the gloomy days of late 2007. Rising stock prices, improved economic forecasts and lower unemployment rates have consumer sentiment soaring.
The most confident Americans, according to the Thomson/Reuters report, appear to be wealthy Americans in the top income levels. Some of their optimism and confidence may be due to the recent stock market rally, which plumped up slimmed-down portfolios among the wealthy. With better market numbers to bolster their consumer sentiment, the wealthiest Americans are spending more on durable goods and expressing confidence in the economic forecast.
For businesses catering to middle-class America, growth remains slow. Companies such as Wal-Mart and Kohl’s, who depend on middle-class America, report that sales remain sluggish. The CEO of OfficeMax states in the Bloomberg article that he believes sequestration, tax hikes and the new health care regulations continue to pinch his small business customers.
Economists have long believed that consumer sentiment and confidence can be used as both a barometer of the economy and a predictor of future growth. John J. Heim, in an article in the Journal of Applied Business and Economics, examined the link between consumer sentiment and overall spending, as well as spending on durable goods, non-durable goods and services. He found that the link was clear and supported by the data: When confidence rises, spending rises.
As more money is spent on goods and services, more wealth is created throughout the entire economy. Whether or not the growing confidence among wealthy Americans is a temporary uptick or a trend remains to be seen, but rising consumer confidence points to positive forces at work after a long period of uncertainty.
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