The Thomson Reuters/University of Michigan’s index on consumer sentiment rose in May to its highest level since October 2007. Consumer confidence has improved in each of the past nine monthly surveys.
The final May reading on the overall index topped the initial May reading (released earlier this month) of 77.8, rising to 79.3 from 76.4 in April. This represents a 6.7 percent increase over the same period last year.
The index of consumer expectations rose from 72.3 in April to 74.3, a 6.9 percent gain over last year, while the current conditions index rose to 87.2 from 82.9, a 6.5 percent gain over last year. These indexes are at their highest levels since January 2008, and July 2007, respectively.
Rising gas prices, bruising economic policy debates, such as the debt ceiling battle last summer, and changes in job expectations played a role in reversing consumer confidence gains that had been made in the past two years, noted Surveys of Consumers Chief Economist Richard Curtin. But he cited favorable job and wage prospects for the improved outlook.
Despite the April jobs report that found a disappointing 115,000 jobs were added to the economy, record numbers of consumers mentioned that they heard of favorable employment trends, Curtin said in a statement. “The continued revival of consumer confidence critically depends on renewed job growth.”
In each of the past three months, the survey found, a majority of consumers reported an improved economy, and twice as many expected further improvement in the year ahead. They did, however, expect the gains to be modest. And with another debt ceiling battle brewing, confidence in the government’s economic policies remained relatively low, with 41 percent holding negative views, Curtin observed.
A majority of consumers (63 percent) also expressed favorable views on buying conditions for household durables in May. Nearly three-quarters (72 percent) of households with incomes over $75,000 were most likely to purchase a new car, up from 67 percent in April and 57 percent one year ago.
The upbeat consumer reports on jobs, Curtin said, could mean that “consumers have yet again pushed their expectations beyond the likely performance of the economy.” The most likely prospect, he said, is that “job growth resumes at a modest pace and that confidence remains largely unchanged until after the November election and decisions about tax policy are made.”
The monthly survey polls 500 households on their financial conditions and attitudes about the economy. Consumer sentiment is directly related to the strength of consumer spending, which accounts for 70 percent of the economy.
Donald Liebenson writes news and features for Millionaire Corner. He has been published in the Chicago Tribune, The Chicago Sun-Times, The Los Angeles Times, Fiscal Times, Entertainment Weekly, Huffington Post, and other outlets. He has also served as a marketing writer for Chicago-based Questar Entertainment and distributor Baker & Taylor.
A graduate of the University of Southern California, he is married with a college-age son. He also writes extensively about entertainment.