Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=221704
Story Retrieval Date: 7/31/2014 8:43:01 PM CST
Consumer sentiment reached its highest level in six years, beating analyst expectations, because increasing real estate values, improved stock prices and a drop in unemployment have improved household wealth.
According to the Thomson Reuters/ University of Michigan preliminary index released Friday, consumer sentiment increased to 83.7 from 76.4 in April. May’s number topped the 77.8 estimate of economists polled by Bloomberg. The index is now the highest since July 2007, before the recession hit, when the index rose to 90.4
“Things are definitely picking up,” said Thomas Mondschean, a professor of economics at DePaul University. “Retail places are doing better, and if you are spending that’s a good sign for the longer term.”
It was reported earlier that the Conference Board’s gauge of consumer confidence, reflecting the public's economic outlook for the next three to six months, rose in May to 74.8 from 67.8 in April.
Since its inception, the average of the Michigan index is 85.2. During non-recession years, the average is 87.6. During the five recessions on record, the average sentiment number is 69.3. The latest sentiment report shows the consumer about 14 points above the average recession sentiment and 4 points below the non-recession average.
In May, buying attitudes towards durable goods rose to 148 from 137. Ben Keys, an assistant professor at the Harris School of Public Policy at the University of Chicago, says that while it’s important consumer attitudes are at a high level, it’s even more important for unemployment rates to stay at low levels.
“Between the slowing recovering job market and the slowly recovering housing market, it’s not surprising that we are getting back to sentiment levels more in line with better times,” said Keys.
Consumers surveyed for Friday's report expect a 3.1 percent inflation rate in the next year, which remains unchanged from the April forecast. Over the next five years, Americans expect a 2.8 percent rate of inflation, slightly down from 2.9 percent expected in April, according to the survey.
Keys believes economic recovery will be a slow, steady process and noted this report is consumer sentiment and not consumer action.
“We want to see if individuals take these positive sentiments and actually act on them and start making those purchases that are going to get the economy going again.”