Uni Michigan index steady in May, beats expectations

Consumer sentiment in the US was steady in May, according to data released on Friday.

The preliminary reading of the University of Michigan consumer sentiment index printed at 98.8 this month, unchanged from April, up from May 2017’s reading of 97.1 and above expectations for a drop to 98.5.

The current economic conditions index came in at 113.3 from 114.9 in April and 111.7 in the same month last year.

Meanwhile, the index of consumer expectations rose to 89.5 from 88.4 last month and 87.7 in May 2017.

Surveys of Consumers chief economist, Richard Curtin, said: "The expectations index gained 1.1 points and the current conditions index fell 1.6 points - both were statistically insignificant changes. What is likely to capture attention, however, are the small uptick in near term inflation expectations, the downward slippage in income expectations, and the expected stabilisation of the national unemployment rate at decade lows.

"The data will thus provide some additional points for both sides in the debate about the timing and number of future interest rate hikes. Eight-in-ten consumers anticipated interest rate hikes during the year ahead, and fewer consumers anticipated further declines in the unemployment rate -although all of the shift was toward the expectation of a stable unemployment rate rather than an increased rate. Consumers have a remarkable track record for anticipating changes in the actual unemployment rate, as shown in the accompanying chart. Overall, the data are consistent with a growth rate of 2.7% in real personal consumption from the second half of 2018 to first half of 2019."

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said: "This is a pleasant, though very modest, surprise. All the increase is in the expectations component, which rose 1.1 points, while the current conditions index dipped by 1.6 points. The expectations measure usually responds to movements in gasoline prices and the stock market, so we expected a small decline. The big picture, though, is unchanged by the increase.

"Consumers' confidence is extremely high, but spending can't keep up at the pace implied by the historical relationship with confidence because real after-tax income growth is not strong enough. The gap will persist. Elsewhere in the survey, 12-month inflation expectations rose a tenth to 2.8%, reversing the April dip, while 5-to-10-year expectations were unchanged at 2.5%. Nothing to worry the Fed here."