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U.S. Consumer Sentiment Hits Highest Level in 15 Years

U.S. household sentiment rose starkly at the beginning of May to its highest level in a decade and a half, driven by a brighter economic outlook.

The University of Michigan on Friday said its consumer sentiment index was 102.4 in early May, up from 97.2 in April. Economists surveyed by The Wall Street Journal expected the confidence gauge to tick down to 97.0.

The survey’s underlying gauge of future expectations increased to the highest level since 2004, driving most of the month’s overall sentiment rise. The headline number has now fully recovered from a drop earlier this year and last year, which was caused primarily by the U.S. government shutdown and financial-market volatility. In the medium term, the index has bounced around historically high levels for more than two years as employers continue to create jobs and wages rise at a faster pace.

“That consumers view prospects for the economy both near and long term at the highest levels since 2004 coincides with more economists pushing out forecasts for the start of the next recession from 2020 to 2021,” said Robert Frick, economist at Navy Federal Credit Union.

Though the relationship between consumers’ outlook and their spending has been weaker in recent years, the University of Michigan report suggests “that, after a sharp slowdown in the first quarter, consumption growth is rebounding in the second quarter” according to Michael Pearce, senior U.S. economist at Capital Economics.

There are a couple caveats. First, Richard Curtin, the survey’s chief economist, pointed out that the index growth was recorded largely before the U.S.-China trade negotiations collapsed. He said negative references to tariffs rose in the past week and thinks they “are likely to rise further in late May and June.”

Those who did hold negative views about the impact of tariffs on the economy and pricing had much lower future economic expectations, potentially diminishing the pace of consumer spending ahead if a loss of general confidence spreads, Mr. Curtin said.

On top of that, expectations for price growth rose in early May, likely driven by rising gas prices.

“It is encouraging that confidence has risen despite the recent surge in gasoline prices,” Mr. Pearce noted.
Source: Dow Jones

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