Read our January 22nd report: The Impact of Emotions on Expectations

Consumers in early April reported surging economic growth and strong job gains due to record stimulus spending, low interest rates, and the positive impact of vaccinations. The Sentiment Index rose to its best level in a year on the strength of recent gains in current economic conditions, while future economic prospects remained unchanged from March. This is opposite of the usual pattern over the past fifty years, when recoveries were paced by larger and earlier gains in expectations. The strength in current economic conditions reflects much larger than usual stimulus payments during the past year, and much larger than usual economic gains due to comparisons with last year's shutdowns. Other factors suppressed the pace of expected gains, including persistent concerns with vaccine safety as well as a surge in year-ahead inflation expectations to 3.7%, the highest level in nearly a decade. Fortunately, this surge in inflation expectations was still well anchored by much lower inflation expectations over the next five years (2.7%). Perhaps more importantly, half of all consumers expected declines in unemployment, the highest level ever recorded.

When asked to explain their buying plans, references to high prices have receded and have been offset by greater confidence in their future job and income prospects (see the chart). Following the pandemic reversal in trends, in the April survey references to net prices and net income prospects were exactly equal as they had been toward the end of the longest expansion that ended at the start of 2020. Overall, the data support an ongoing surge in consumer spending, but given persistent uncertainty about the course of covid-19 and inflation, cautious drawdowns of savings can be anticipated. This shift has increased the reliance of the recovery in consumer spending on actual gains in job and incomes.