The University of Michigan consumer confidence index rose to a preliminary reading of 97.6 for March from 96.3 in February. This was above consensus expectations of 97.0 and an increase of 7.3% over the year.
The Current Economic Conditions index rose significantly to 114.5 from 111.5 with an 8.4% gain over the year. This was the highest reading since 2000 with consumers notably more optimistic surrounding personal finances.
There was a strong boost to the index following November’s Presidential election with increased optimism over tax cuts and a more activist agenda to boost the US economic performance. So far, confidence has remained high on average, although there are important divisions.
There was a slight improvement in the Consumer Expectation component to 86.7 from 86.5 with a 6.4% annual increase. Within the Expectations index, there was still a very high degree of partisan responses. Expectations among Democrats remained in deep recession territory at 55.3 while Republican respondents recorded a very strong figure of 122.4.
The 1-year inflation expectations component declined to 2.4% from 2.7% previously while the 5-year inflation expectations figure declined to 2.2% from 2.5% and this was the lowest reading in the survey’s history.
The drop in inflation expectations is somewhat surprising given that headline inflation rates have risen strongly over the past few months under the influence of higher energy prices and base effects.
There will be speculation that lower inflation expectations will tend to deter the Federal Reserve from raising interest rates more forcefully, especially as inflation expectations have been a key area of concern during the period of low inflation.
Markets tended to focus more on the inflation data and the dollar moved lower with USD/JPY below the 113.00 level at 112.85. Treasuries rallied with 10-year futures up 12 ticks as the yield fell to 2.50% while equities nudged into negative territory.