U.S. consumer sentiment brightens in May

Confidence among U.S. consumers rose in May from April’s eight-month low, defying analysts’ predictions, according to the Reuters/University of Michigan Surveys of Consumers report released today.
The Consumer Sentiment Index increased by 1 percent to 88.7 points in May from 87.1 in April, the survey found. The index, created in 1978, has a historical average of 88.1 points.
Most economists had expected consumer sentiment to continue its three-month decline, according to Bloomberg News, whose survey of 67 analysts predicted the index would fall to 86.2 points.
The UMich survey found U.S. consumers expect an inflation rate of 3.2 percent one year from now, a slight decline from last month’s forecast of 3.3 percent inflation.
The survey’s consumer expectations index – an indicator of future spending – rose to 79 points in May from April’s revised level of 75.9. That’s good news for the U.S. economy, in which consumer spending accounts for two thirds of all activity.
By contrast, economists in an April 30 to May 8 Bloomberg survey predicted spending will grow by 2.3 percent this quarter, slowing from the first quarter’s 3.8-percent rise. One reason for analysts’ pessimism is the housing slump, which has lowered home values and tightened credit, drying up the pool of home equity that had helped fueled recent spending.
“We’re seeing a strengthening in the labor market that’s making people feel better about their employment prospects and about the economy,” Julia Coronado, a senior economist at Barclays Capital in New York, told Bloomberg News. “The boost from the stock market offset the drag from gas prices.”
The Reuters/University of Michigan Surveys of Consumers is produced each month by the University of Michigan and distributed by Reuters. The preliminary report is based on a telephone survey of about 300 households; the final results, due June 1, will include about 500 responses. Additional information is available at www.sca.isr.umich.edu.

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