Consumer Sentiment Research Notes

by Jim Baird on May 11, 2012

Consumer sentiment edged up, surpassing expectations

The mood of U.S. consumers, as measured by the University of Michigan Consumer Sentiment Survey, improved modestly in May to 77.8.  Expectations were for the index to decline fractionally.  Mixed results in employment data have contributed to renewed worries that the economy may be softening.  Both jobless claims data and nonfarm payrolls have slipped in recent months, although both remain in territory consistent with a growing economy. 

Falling prices at the pump have also boosted spirits at the margins.  While oil and gas prices remain elevated, reduced demand expectations resulting from slower global growth and a temporary easing of tensions in the Middle East have contributed to a decline in prices, easing pressure on consumer pocketbooks. 

The recent increase in outstanding consumer credit reflects both an increased willingness by bankers to lend and a renewed appetite by consumers to borrow.  Consumers remain more judicious about their spending habits than was the case in the period leading up to the Great Recession.  Nonetheless, increased borrowing in recent months suggests that households may be feeling a bit more confident in their personal financial circumstances and a bit more willing to spend more freely.

The missing ingredient remains income growth, which remains mediocre.  Disposable personal income growth remains limited, but on an inflation-adjusted basis has been virtually non-existent.  While consumers can borrow or reduce savings to increase spending in the short-term, stronger income growth will be needed over the intermediate-term to allow households to continue to adequately address their debt burden and savings goals.

While we still see a number of risks to the economy, continued improvement in consumer sentiment remains a positive development that has the potential to contribute to sustained spending growth and a virtuous cycle that should benefit the broad economy and the jobs market.

To see news coverage featuring Jim’s comments, please visit the following sites:

Consumer Confidence Up:  Solid Jobs Growth  Or Crashing Expectations Ahead (Forbes)

Stocks Turn Around, Despite Trading Loss (New York Times)


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