Consumer sentiment rises to highest level in a year

Consumer sentiment rose in early March to its highest level in a year due to the growing number of vaccinations as well as the widely anticipated passage of Biden's relief measures. The gains were widespread across all socioeconomic subgroups and all regions, although the largest monthly gains were concentrated among households in the bottom third of the income distribution as well as those aged 55 or older. Over the past fifty years, the key age group that consistently led recoveries, but was the last age group to indicate a pending recession, was consumers under age 35 (see the featured chart).

The early March gains were not equally shared across all Index components, with consumers voicing no improvement in some key facets of consumer finances. In particular, consumers' judgements about their own financial situation posted no gains in early March, largely due to very small expected gains in household incomes over the next year. In contrast, prospects for the national economy improved significantly. Another important distinction involved greatly improved views of buying conditions for large household durables, but only marginal gains for vehicles and homes. Inflation expectations for the year ahead remained elevated, but consumers thought the inflation rate would fall back to lower levels over the longer term. Importantly, consumers thought that the interest rates they faced for mortgages and vehicle loans would rise during the year ahead. Overall, the data indicate strong growth in consumer spending during the year ahead, with the largest percentage gains for services, including travel and restaurants, and the smallest increases for vehicles and homes.