Consumer Sentiment Improves In May: Job Market May Follow

Consumer sentiment crept up slightly in May to its highest level in four years as gasoline prices declined and many perceived the job market to be improving.

The Thomson Reuters/University of Michigan preliminary May reading of overall consumer sentiment rose to 77.8 from 76.4 in April, beating the predicted reading of 76.2, according to Reuters. The reading is the highest since January 2008.

While job growth has slowed recently, almost twice as many consumers reported hearing about new job gains as compared to losses, according to Reuters. Consumer perception of the employment market presages either that improved labor numbers will become apparent soon or that Americans have let their expectations grow too high.

The most likely prospect is that job growth returns to a modest pace of gains and consumers trim their overly optimistic expectations with not much change in overall confidence until after the November (presidential) election and the decisions on tax policy, survey director Richard Curtin said, according to Reuters.

Falling gasoline prices may have also boosted consumer sentiment. Gasoline prices have dropped 21 cents since April, providing consumers with extra income in May, according to Bloomberg.

Consumers planned to buy more vehicles and consumer goods at the beginning of the month, and 65 percent said buying conditions were favorable, according to Reuters. Likewise, overall economic conditions have improved with the index reading 87.3 compared to 82.9 a month ago. Despite improving economic conditions, though, the consumer expectations index fell from 72.3 to 71.7.

Consumer expectations may be down because they rated their personal finances poorly. Only 29 percent of households said their financial situation had improved, unchanged from the year before, according to Reuters. The survey's prediction of inflation ticked downwards slightly to 3.1 percent from 3.2 percent. The five-year to 10-year inflation outlook rose slightly from 2.9 percent to 3.0 percent.