Consumer sentiment improved slightly in May boosted by a big improvement in views of current economic conditions.
The University of Michigan’s index of consumer sentiment rose half a percentage point in May, according to the survey’s chief economist Richard Curtin.
Consumer assessments of current conditions jumped 10 percent compared with April. The gauge of current conditions crashed in March and early April, falling by 40 points. But it appeared to stabilize in April, perhaps because of government payments to taxpayers, programs to stabilize employment, and enhanced unemployment benefits. Now it is on the rise again.
“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,” Curtin said.
Troublingly, consumer expectations continued to weaken in May as it became clear that the reopening of the economy would be slower than many expected when the lockdown orders were initially issued. Expectations began weakening in March but held up better than the current conditions metric, indicating that Americans were startled by the sudden crash in stocks and lockdown orders that brought much of the economy to a halt but expected a quick recovery. April saw a steeper plunge in expectations as the extent of the economic damage became clearer and lockdowns stretched on.
In May, the expectations gauge fell another 6 percent to 65.9, the lowest level in six years, from 67.7 in the mid-month preliminary reading and 70.1 in the April reading.
“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,” Curtin said.
While the government’s aid programs have likely boosted consumer sentiment they are also likely the cause of rising inflation expectations. Recent data on prices, however, suggests that the economy is experiencing deflationary pressure from lower consumer spending. Bond yields and other market based indicators do not predict much inflation in the year ahead.