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According to the University of Michigan’s Index of Consumer Sentiment, U.S. consumers are feeling more positive about the combination of current and future economic conditions than at any other period in the last 15 years.

The consensus estimate was for an index reading of 97.5, and the actual figure came in at 102.4 last Friday (May 17), far exceeding estimates. The component measuring consumer expectations for the future showed a far more significant bounce from April than the component for current conditions, rising 9.8%.

TABLE 1: PRELIMINARY RESULTS FOR MAY 2019 CONSUMER SENTIMENT INDEX

Source: University of Michigan

Surveys of Consumers chief economist, Richard Curtin, commented on the survey results release,

“The Index of Consumer Sentiment surged in early May to its highest level in fifteen years. All of the May gain was in the Expectations Index, which also rose to its highest level since 2004, while the Current Conditions Index was virtually unchanged and well below the cyclical peak set in March 2018. Consumers viewed prospects for the overall economy much more favorably, with the economic outlook for the near and longer term reaching their highest levels since 2004. The gains were recorded mostly before the trade negotiations with China collapsed and China responded with their own tariffs.”
FIGURE 1: UNIVERSITY OF MICHIGAN INDEX OF CONSUMER SENTIMENT

Source: University of Michigan

Mr. Curtin also notes that the while this data does not reflect the impact of the recent stalled trade negotiations with China, concern over the tariff issue has been steadily dropping among consumers since “the initial imposition of tariffs” back in July 2018. He expects that a stepping up of the trade war will undoubtedly impact consumer sentiment in the future if it continues without resolution and fosters an increasingly tense relationship between the governments of the U.S. and China.

He writes,

“To be sure, negative references to tariffs rose in the past week and are likely to rise further in late May and June. Those who held negative views about the impact of tariffs on the economy and pricing had values on the Expectations Index that were 25 points lower, and expected the year-ahead inflation rate to be 0.6 percentage points higher. Even apart from the direct impact of tariffs on prices, rising tariffs could cause a more general loss of confidence which could further diminish the pace of consumer spending. At present, the data point toward moderate spending growth in the year ahead. Nonetheless, the data indicate the corrosive impact of an escalating trade war.”
FIGURE 2: SPONTANEOUS UNFAVORABLE REFERENCES TO TARIFFS

Source: University of Michigan

Despite the very positive consumer sentiment readings, retail sales in April disappointed.

MarketWatch reported comments by Neil Dutta, head of economics at Renaissance Macro Research:

“Generally speaking, we’ve seen weaker hard data for April—core retail sales and industrial production—but sentiment or survey based data for May have come in strong for factories, housing and the consumer. This suggests underlying growth is reasonably healthy.”

MarketWatch also noted,

“Sales at U.S. retailers fell in April for the second time in three months, a sign that Americans are exercising caution over how much they spend with the economy facing increased headwinds. Retail sales dropped 0.2% last month, the government said Wednesday. Sales declined in most major segments including automobiles, home centers and internet stores.”

That said, Trading Economics notes that the disappointing data for April retail sales came after very positive March data where “upwardly revised 1.7 percent growth in March … was the biggest increase in sales for one-and-a-half years.”

FIGURE 3: U.S. RETAIL SALES DATA, PAST 12 MONTHS

Source: tradingeconomics.com, U.S. Census Bureau

Last Friday also saw the release of The Conference Board’s Leading Economic Index (LEI), which showed its positive trend continuing for now:

“‘The US LEI rose in April, the third consecutive increase, with a majority of the leading indicators making positive contributions,’ said Ataman Ozyildirim, Director of Economic Research at The Conference Board. ‘Stock prices, financial conditions, and consumers’ outlook on the economy buoyed the US LEI, although the manufacturing sector showed continuing weakness. The Conference Board expects economic growth to moderate toward 2 percent by year end. The current expansion will enter its 11th year in July, becoming the longest expansion in US history.’”

FIGURE 4: CONFERENCE BOARD LEADING ECONOMIC INDEX RISES FOR
THIRD CONSECUTIVE MONTH

Source: The Conference Board

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