The gauge of current conditions increased to 121.2 from 114.9 in February but was lower than 122.8 in the preliminary figures. The expectations subindex fell less than estimated to 88.8 from 90 in February and compared to a preliminary reading of 88.6. Inflation expectations for the year ahead increased to 2.8 percent from 2.7 percent in the previous month but below 2.9 percent in the preliminary reading. The 5-year outlook was steady at 2.5 percent, matching earlier figures and the same as in the previous month.
The Sentiment Index, however, still reached the highest level since 2004, and the Current Conditions Index set a new all-time peak. Importantly, all of the March gain in the Sentiment Index was among households with incomes in the bottom third (+14.1); those in the middle third were unchanged, while the Index fell among households in the top third (-5.6). Households with incomes in the top third cited significantly greater concerns with government economic policies than last month, especially trade policies, with net references falling from +31 to just +1, offsetting their positive reactions to tax policies. The consensus expectation among consumers is that interest rates will increase in the foreseeable future. While consumers view the current level of interest rates as still relatively low, they understand that interest rate hikes are intended to dampen the future pace of economic growth. Their reaction will both emphasize borrowing-in-advance of those expected increases as well as heighten their precautionary savings motives. The trade-off between spending and saving will crucially depend on the pace of future interest rate hikes compared with the pace of income growth. It is likely that income growth will initially dominate, tilting consumers' motives more toward spending than saving. Overall, the data are consistent with a growth rate of 2.6% in consumption from mid-2018 to mid-2019.