Wednesday, 22 of May of 2019

Economics. Explained.  

Consumer Sentiment

May 17, 2019

Consumer sentiment for May jumped 5.2 points to 102.4 after having declined 1.2 points in April.  This is the highest level of sentiment since January 2004 when it was 103.8.

Richard Curtin, the chief economist for the Surveys of Consumers, said, “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.”  He added that, “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.”

Our sense is confidence will maintain a lofty level in the months ahead.  Since the beginning of the year the stock market recovered all of what it lost in the fourth quarter, hit a new record high level, and is currently just 2% below that new record high level.  The Fed has said it intends to leave rates unchanged for the foreseeable future.   And mortgage rates have fallen from 4.9% to 4.1%.

We expect GDP growth of 2.7% in 2019 versus 3.0% last year.  We expect the economic speed limit to be raised from 1.8% to 2.8% within a few years.  That will accelerate growth in our standard of living.  We expect worker compensation to increase 3.7% in 2019 vs. 2.6% last year. The core inflation rate (excluding the volatile food and energy components) should be steady at 2.1% in 2019.  Such a scenario would keep the Fed on track for no rate hikes through the end of the year and perhaps for  2020 as well.

The big jump in consumer sentiment in May was entirely attributable to the expectations component.

Consumer expectations for six months from now jumped from 87.4 to 96.0.

Consumers’ assessment of current conditions edged upwards from 112.3 to 112.4.

Trends in the Conference Board measure of consumer confidence and the University of Michigan series on sentiment move in tandem, but there are often month-to-month fluctuations.  Both series remain at levels that are consistent with steady growth in consumer spending at a reasonable clip of about 2.5% in 2019.

Stephen Slifer

NumberNomics

Charleston, SC


Leave a comment