Consumer Sentiment: Slight Rebound After Sharp Drop

Bottom Line:  The University of Michigan's consumer sentiment index rebounded slightly in the latter half of May, but year-ahead expectations for the economy were still down 17% from April, with long-run expectations down 14%. Consumers remain concerned about the debt ceiling crisis, and the recent trajectory of the sentiment indices mirrors that seen during the 2011 crisis. That said, consumers reported that their personal finances were little changed, and their expectations for income gains were steady, suggesting there is still income to fuel modest spending gains this year. Overall, consumers continue to worry about inflation and high-interest rates. And now they are concerned that fiscal policymakers will throw the economy into recession. But consumers still report modest to moderate income gains, which should propel positive but cautious spending growth.

The University of Michigan's Consumer Sentiment Index FELL -4.3  to 59.2, BELOW the 3-month average of 61.57 but 1.4% ABOVE the year-ago level. The Current Conditions Index FELL -3.3  to 64.9, BELOW the 3-month average of 66.47 but 2.5% ABOVE the year-ago level. The Future Expectations Index FELL -5.1  to 55.4, BELOW the 3-month average of 58.37, nearly in line with the year-ago level of 55.2. Year-ahead inflation expectations FELL -0.4  to 4.2, ABOVE the 3-month average of 4.13 but -1.1 BELOW the year-ago level. Long-term (5 years) inflation expectations ROSE 0.1  to 3.1, ABOVE the 3-month average of 3 and 0.1 ABOVE the year-ago level.