Final Reading on Consumer Sentiment Revised Down

A closely-watched gauge of consumer sentiment from the University of Michigan came in at 94.7 in May, down slightly from an initial reading of 95.8. Still, the final reading beat the reading of 89 from the prior month and economists anticipated a reading of 95.4.

“Consumers were a bit less optimistic in late May than earlier in the month, but sentiment was still substantially higher than last month,” Surveys of Consumers chief economist, Richard Curtin said. “Indeed, there have only been four prior months since the January 2007 peak in which the Sentiment Index was higher than in May 2016, all recorded at the start of 2015.”

Despite the meager GDP growth as well as a higher inflation rate, consumers became more optimistic about their financial prospects and anticipated a somewhat lower inflation rate in the years ahead. Positive views toward vehicle and home sales also posted gains in May largely due to low interest rates. The biggest uncertainty consumers see on the horizon is not whether the Fed will hike interest rates in the next few months, but the outlook for future government economic policies under a new president. This has increased their emphasis on maintaining precautionary savings, although the savings rate is not expected to increase much beyond its current level. Although small stock gains are anticipated, household wealth is more likely to benefit from rising home prices, with gains now more frequent than in a decade. Overall, the data indicate that inflation-adjusted consumer expenditures can be expected to rise by 2.5% in 2016 and 2.7% in 2017.