US consumers most positive in four years

Posted on May 25, 2012

US consumer sentiment was the strongest in more than four years this month as Americans were more upbeat about jobs and income growth amid easing petrol prices.

The Thomson Reuters/University of Michigan’s consumer sentiment index jumped to 79.3 in May from 76.4 in April, ahead of forecasts of 77.8. It was the highest level since October 2007 and a significant advance from a preliminary reading of 77.8 earlier in the month.

    The survey is measured on a scale of 100, which represents sentiment in December 1964. Readings of 90 to 100 are common in a strong economy; the index averaged in the mid-60s during the recession.

    The latest figures showed consumers remained optimistic about current economic conditions, including their financial situations and willingness to spend money on big purchases. That measure rose to 87.2 from 82.9 in April.

    They were also more upbeat about the future, with the gauge of expectations for the next six months climbing from 72.3 to 74.3, the highest level since July 2007.

    “That is a pre-crisis level,” said David Semmens, senior US economist at Standard Chartered. “One has to take encouragement from the improvement in this survey, if only income growth would justify the improvement in optimism rather than continue to disappoint.”

    Average wage growth has lagged behind inflation, running below 2 per cent since 2008, and the labour department’s April jobs report showed hourly earnings were flat.

    Predictions for income growth in the survey were upbeat, however, with high-income households expecting a 2 per cent rise in wages in the next year while lower income respondents expected an 0.3 per cent increase.

    “Unfortunately, consumer confidence is still extremely vulnerable to a reversal, as occurred in the past two years,” said Richard Curtin, director of the survey. “If the recent slowdown in job growth persists in the months ahead, it could form the basis for a third retreat in confidence.”

    The government’s reading of May employment growth, due next week, is expected to show the US added 150,000 jobs, up from 115,000 in April.

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