Consumer Sentiment Rose 2.9% in May

Ann Arbor, MI, May 31, 2019-Consumer sentiment roe 2.9% to 100.0 in May, from April’s 97.2 rate, according to final results from the University of Michigan Survey of Consumers.

This represents a 2.0% increase year over year. 

“Although consumer sentiment remained at very favorable levels, confidence significantly eroded in the last two weeks of May,” says Survey of Consumers chief economist Richard Curtin. “The late-month decline was due to unfavorable references to tariffs, spontaneously mentioned by 35% of all consumers in the last two weeks of May, up from 16% in the first half of May and 15% in April and equal to the peak recorded last July in response to the initial imposition of tariffs. The year-ahead inflation expectations jumped to 2.9% in May up from last month’s 2.5%. Year-ahead inflation expectations among those who unfavorably mentioned tariffs was 0.5 percentage points higher than those who made no references to tariffs. Importantly, the gain in inflation expectations was recorded prior to the actual increases in consumer prices due to the most recent hike in tariffs. While higher inflation expectations modestly reduced real income expectations, the largest impact was on buying conditions for appliances and other large household durables, which fell to their lowest level in four years. The combination of higher inflation and a slower pace of spending provide conflicting signals for monetary policy. The divergence will further widen if, as is likely, the trade war escalates. Will the Fed risk higher inflation by lowering interest rates, or risk higher unemployment by raising interest rates? This dilemma comes at a time when consumers have expressed the highest level of confidence since 2002 in the government’s ability to keep both inflation and unemployment at reasonably low levels (see the chart). Consumers now judge economic security more important than a faster pace of growth in their personal incomes or household wealth.”