Final Consumer Sentiment Ticks Higher in May

‘Growing Number of Consumers Expected the Economy to Improve from Its Recent Standstill’

Ann Arbor, Mich. (PPD) — The Survey of Consumers final reading on consumer sentiment ticked higher in May to 72.3, though lower than the preliminary and the consensus forecast. Forecasts for the headline index ranged from a low of 73.6 to a high of 76.0, and the consensus forecast was 74.0.

“Consumer sentiment has remained largely unchanged during the past two months, with the final May estimate just a half index point above the April reading,” Richard Curtain, chief economist for the Survey of Consumers, said.

“The CARES relief checks and higher unemployment payments have helped to stem economic hardship, but those programs have not acted to stimulate discretionary spending due to uncertainty about the future course of the pandemic.”

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It should not be surprising that a growing number of consumers expected the economy to improve from its recent standstill, or that the majority still thought conditions in the economy would remain unfavorable in the year ahead. This has been a common occurrence in past cycles (see the chart). Expectations for economic growth have always dominated at the ends of recessions, and favorable assessments about the current state of the economy are more frequent near the ends of expansions. The gap between economic growth and the current performance of the economy is likely to grow significantly when the disastrous 2nd quarter GDP is announced. More widespread price discounting as well as low interest rates have helped to improve buying plans, but those plans still remain well below the levels recorded three months ago. Adding to consumers’ concerns about a significant expected drop in income growth, year-ahead inflation expectations rose sharply, putting extra pressure on consumers’ abilities to maintain their living standards.

Richard Curtain, chief economist for the Survey of Consumers