The University of Michigan’s Consumer Sentiment Index rose again in the final March reading to reach 84.9, outpacing the expectation of 83.6. That marked the highest reading for the index since the outbreak of the COVID-19 pandemic a year ago. Even so, Americans have yet to fully regain the degree of optimism that had prevailed in the period leading up to the rapid wave of closures that shut down much of the economy and impacted many aspects of everyday life last March.
A third round of stimulus checks likely contributed to growing optimism and should help to fuel continued spending growth. How much of that cash is disbursed into the economy in the near term remains to be seen, as a meaningful portion will undoubtedly be used to reinforce savings or reduce debt. That was the case last year, although it’s possible that more will be spent in this round with more Americans both willing and able to leave their homes, travel, and spend. Even so, stimulus checks will support a solid boost to consumer spending in the coming months.
Consumers were more optimistic on two fronts, in both their assessment of the current state of the economy and expectations for the future. Despite the improvement, it’s clear that consumers remain somewhat cautious in one aspect of their outlook — acknowledging the improvement in conditions in recent months, while understandably maintaining a more guarded view of the future.
The consumer outlook on the economy has improved considerably since last summer, lifted by progress in the fight against the pandemic. The growing availability of vaccine, falling case counts, and easing of various restrictions have all been positive developments that suggest a realistic light at the end of the tunnel. Assuming these trends continue and public safety permits, consumers should feel more comfortable to resume dining out, shopping in stores, traveling, and returning to other daily activities that more closely resemble pre-pandemic lifestyles. Greater mobility and further progress in reducing the health risks associated with COVID-19 — when barring a significant setback — should continue to boost confidence sooner rather than later.
The greatest risk still appears to be the unknowns concerning new strains of COVID-19 and the efficacy of existing vaccines to protect against those variants. A negative outcome there could certainly delay progress in the return of pre-pandemic norms.
The bottom line? While there are still several hurdles to overcome, there’s a growing sense that the worst is possibly behind us and better days lie ahead. The arrival of spring and warming temperatures in any year tends to lift moods — this year, there’s even more reason for greater optimism in the near future.
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