Shock: Consumer Sentiment Improved in May

Lower prices, lower interest rates, and government aid boosted consumer sentiment in the first weeks of May, creating an unexpected rise in the University of Michigan’s consumer sentiment index.

The index rose to 73.7 for May,  up from 71.8 in April. Economists had expected a further decline to 65.

“The CARES relief checks improved consumers’ finances and widespread price discounting boosted their buying attitudes,” Richard Curtin, chief economist for the survey, said in a statement.

One unexpected result from the May survey: a sharp move upward in inflation expectations. It may be that consumers seeing falling prices now and reading about a burgeoning government deficit think that prices will move higher when the economy reopens.

The public’s view current economic conditions improved in May, pushing the indexes gauge of this to 83 from 74.3 in April. Consumers’ outlook for the future weakened to a six year low of 67/7 from 70.1.

The survey also asked consumers to identify their top concerns about the pandemic. Those citing finances as their top concern fell to 17 percent in May from 22 percent in April, the opposite of what many expected would happen as widespread shutdowns continued and a testament to the effectiveness of the Trump administration’s programs aimed at sustaining employment. It’s also a promising sign that the economy may recover more swiftly than some grim forecasts predict.

“Surprisingly, it was greater concerns about social isolation that increased, cited as the top concern by 21 percent in May up from 14 percent in April. While these shifts were quite small, they indicate the growing costs of social isolation and its potential to shift opinions about reopening the economy,” Curtin said in a statement.

Health remains the top concern, with 57 percent of Americans citing it as the biggest pandemic worry. But that’s a decrease from 61 percent in April, an indication that health concerns are lifting a bit.

The government reported earlier Friday that April saw the biggest drop ever for retail sales. The bounce in consumer sentiment may indicate that sales could rebound in May.