The University of Michigan Consumer Sentiment Index dipped to 96.9 in the preliminary April reading, down from 98.4 in March. However, consumers’ perceptions of current conditions firmed to 114.2 after 113.3 in the prior month. Six-month expectations were lower at 85.8 after 88.8.
The strong labor market and modestly rising incomes are keeping consumer confidence elevated in the historical context, but the index is trending below the highs seen in 2017 and 2018. Readings in the mid-to-upper 90’s should not change the overall picture. Good confidence should help support consumer spending in coming months. However, the longer-term expectations have faded along with the stimulus from the tax package enacted in December 2017. Business conditions are far from soft. Rather, they have returned to the modest-to-moderate growth that has characterized much of the long expansion.
In spite of higher gasoline prices, consumers see only modest upward inflation pressure. The preliminary April 2.4% for 1-year inflation expectations is the lowest since October 2017. The 5-year inflation expectations for early April was at 2.3%, indicating that worries about higher prices over the medium term were low. I would anticipate some upward revisions to these along with the higher gasoline prices in recent weeks. However, inflation and inflation expectations remain tame.
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