The sell-off in the stock market and rising problems in Europe aren't rattling the US consumer whose sentiment is clearly stronger than it's ever been during the recovery. The Reuters/University of Michigan index jumped to 79.3, up nearly 3 points from April and up 1.5 points from the mid-month reading. This last comparison, which puts the index at an implied 80.8 over the past two weeks, indicates that the rise in optimism is now picking up intensity.
The decline underway at the gas pump, where prices have come down about 5 percent this month, is a central factor for the consumer and is offsetting troubles elsewhere. Inflation expectations are down with 1-year expectations at 3.0 percent, down 2 tenths from April, and with 5-year expectations at 2.7 percent which is down 2 tenths from April.
Other readings include month-end recovery bests for both current conditions, at 87.2, and expectations which is at 74.3. It's this latter reading where the last two weeks of strength is centered, which hints at rising optimism on future job prospects and for future income power. The Dow isn't getting much boost from this report at least at first, but the strength here is convincing. Next data on the consumer will be the monthly consumer confidence report from the Conference Board on Tuesday.
Market Consensus before announcement
The Reuter's/University of Michigan's consumer sentiment index in early May was up a solid 1.4 points at mid-month to a preliminary 77.8 versus April's 76.4. The latest reading edged out February 2011 for the best reading so far of the recovery. The latest report showed a decline in the expectations component, which is now off recovery highs with a six tenth dip to 71.7. Optimism over the future is limited, a factor that limits consumer spending. The good news in the report was a rise in the assessment of current conditions, up a very strong 4.4 points to a recovery best 87.3.