Consumer Sentiment Stays Strong–With A Few Worrisome Wrinkles

Normally I don’t pay much attention to the University of Michigan Consumer Sentiment Survey. The survey questions are just so broad that I’m not sure it’s an indicator of much of anything.

But at the moment, I think the survey counts. And that’s because we’re at a tricky point in the economy with interest rates rising, income gains still puzzlingly slow, and enough chaos in global trade to potentially derail growth in the manufacturing sector. At this point, I think consumer spending is the best chance for the economy to grow at anything better than 2% for the rest of 2018. So I’m tracking every indicator I can find–including this one.

Today’s report for May is supportive.The preliminary University of Michigan Consumer Sentiment Survey showed the index holding steady with the final reading for April of 98.8.

That means the index remains near a 14-year high. A good tahing, I’d say.

There was some slippage that suggests keeping a close watch on the index and the economy. Expectations for inflation in one-year rose to 2.8% from 2.7%. An increase in expectations for future inflation is just what the Federal Reserve is looking to head off with its interest rate increases. The index also showed a slight slip in expectations for future income. That’s a potential worry since consumers tend to spend more if they think  incomes are headed up–and to save more if they think incomes might be stagnant.

According to the report, the data are consistent with a growth rate of 2.7% in real personal consumption expenditures from the second half of 2018 to the first half of 2019.