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First Cut: May Final Consumer Sentiment Index remained among lowest readings in 8 years

The University of Michigan Consumer Sentiment Index for May was revised down to 72.3 in the final report (previously 73.7). It was the second lowest reading the 72.3 in July 2012 after the drop to 71.8 in April. While consumers were a little more confident in May about current conditions at 82.3 after 74.3 in the April report, six month expectations were lower at 65.9 after 70.1.

In May there was some relief from signs of scattered resumptions of public activity and/or from payments from government programs to replace lost income. However, risks and uncertainties about the outlook continued to abound. Many lower-wage workers were worried about their ability to return to their jobs should they be recalled. Worries about a second wave of infections should the economy reopen too soon were also prevalent. In any case, the improvement in overall sentiment was by not means enough to suggest that consumers were either in a mood or a financial position to spend.

The 1-year inflation expectations measure was revised up to 3.2% in May (previously 3.0%) and a sharp rise from the 2.1% in April that was part of a downward trend related to falling energy costs. I do not think that consumers are finding actual price increases so much as a reduced affordability of goods and services that makes prices seem on the rise. A more downbeat assessment of the economic outlook was probably part of the reason for the two-tenths increase in the 5-year inflation expectations measure to 2.7% in May to its highest since 2.7% in March 2016 when oil prices were beginning to exert some upward pressure on prices overall amid signs of an economic pickup.

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