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Consumer sentiment in US decreased in may to a six-month low
[WASHINGTON] Consumer confidence in the US fell to a six-month low in May as Americans became less sanguine about the prospects for the economy.
The University of Michigan said Friday that its final index of sentiment for the month decreased to 90.7 from 95.9 in April. It marked the biggest decline since the end of 2012. The median projection in a Bloomberg survey of economists called for 89.5 after a preliminary May reading of 88.6.
Household concerns that the economy is stumbling and wages will be slow to increase combined to depress spirits at the same time gradually rising gas prices took a bit more of consumers' incomes. Continued improvement in the labour market that includes greater job security probably needs to be accompanied by pay gains to encourage more spending and propel growth.
"The consumer is still somewhat AWOL - they're feeling better about their financial situation, but they're not overly optimistic to the point where they're ready to go out and spend," Russell Price, senior economist at Ameriprise Financial Inc in Detroit, said before the report.
"Even though growth looks like it's sluggish, we're still improving on fundamentals, and I think that's a very good story for consumers." Estimates in the Bloomberg survey of 62 economists ranged from 86 to 95.5. The index average 84.1 last year.
The Commerce Department on Friday said gross domestic product declined at a 0.7 per cent annualized rate in the first quarter, revised from a previously reported 0.2 per cent gain. A swelling trade gap subtracted the most from the economy in 30 years as a stronger dollar caused exports to slump, while imports rose following resolution of a labour dispute at West Coast ports.
"Although the loss in confidence narrowed in late May, the decline for the month as a whole was still substantial as consumers have adopted more modest prospects for a rebound following the economy's dismal first-quarter performance," Richard Curtin, director of the Michigan Survey of Consumers, said in a statement.
In the May report, 56 per cent thought the economy was improving, down from 63 per cent a month earlier and 68 per cent at the start of the year.
The current conditions index declined to a seven-month low of 100.8 in May from 107 in April.
The measure of expectations six months from now decreased to 84.2, the weakest since November, from 88.8.
Inflation Expectations Americans expected an inflation rate of 2.8 per cent in the next year, up from 2.6 per cent in April. Over the next five to 10 years, they expect a 2.8 per cent rate of inflation, compared with 2.6 per cent in the previous month.
The Michigan report corroborates the Bloomberg Consumer Comfort Index, which fell for a seventh straight week in the period ended May 24. Attitudes about whether it was a good time to spend slumped by the most since 2011.
While the Conference Board's consumer confidence index advanced to a reading of 95.4 this month from April's 94.3, the measure is down from a more than seven-year high of 103.8 reached in January.
Weaker confidence helps explain why consumer spending has been slow to accelerate even after months of savings from lower gasoline costs. Retail sales barely budged in April and followed a 0.2 per cent drop from January through March that marked the first quarterly decline in almost three years.
Growth will probably pick up after a weak start to the year, according to Federal Reserve policy makers, who are trying to figure out when the economy will be strong enough to withstand their first interest rate increase since 2006.
Fed Chair Janet Yellen said in a May 22 speech she expects the economy to return to a "moderate" pace of growth after a disappointing first quarter as headwinds such as a cooling global economy abate.
Stronger growth would help boost industries including housing, which has shown choppy improvement over the past few months. Steady hiring, low borrowing costs and a limited supply of existing homes has spurred demand for new properties even as sluggish wage growth keeps some buyers out of the market.
"Economic fundamentals are in place to support the housing market," Dave Liniger, chief executive officer of Re/Max Holdings Inc., said on a May 8 conference call. "More people are getting jobs, soon employers may be competing for employees, which should push wages higher. Wage growth coupled with increased consumer confidence should spur more activity on the housing market."
The Labour Department's monthly employment data showed hourly pay was up 2.2 per cent in April compared with a year earlier, holding within the narrow range it's tracked over the past four years. The report also showed payrolls climbed by 223,000 last month after an 85,000 gain in March that was the smallest since June 2012.
Weak wages may not be the only thing holding back consumer confidence. Gas prices, which economists say helped prop up sentiment earlier this year, have recovered from their lows.
The average price of a gallon of regular gasoline was $2.74 on May 28, about the highest level since early December. While that's 35 per cent higher than a more than five-year low reached in January, it's still less than last year's peak of $3.70.
BLOOMBERG
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