| Consensus | Consensus Range | Actual | Previous | |
| Index | 48.2 | 47.9 to 49.0 | 44.8 | 48.2 |
| Year-ahead Inflation Expectations | 4.5% | 4.5% to 4.7% | 4.8% | 4.5% |
Highlights
A sickening, unexpected drop in consumer sentiment and unexpected rise in inflation expectations in the revised consumer sentiment report from the University of Michigan points to the impact of increasing worries over inflation flowing from the US-Iran war.
Sentiment fell to 44.8 in the final May reading from 48.2 in the preliminary report for May, and down a whopping 10 percent from the April final at 49.8. The Econoday consensus looked for no revision in the final from the preliminary at 48.2, and generally these reports do not see substantial change from the preliminary number. That suggests a pretty dramatic downturn in sentiment as the survey continued and included more respondents through the month.
On inflation expectations, the one-year figure jumped to 4.8 percent from 4.5 percent in the preliminary, again in contrast with the consensus that looked for no revision. Long-term expectations, that is 5-year expectations, are up to 3.9 percent in the May final from the 3.4 percent preliminary and from 3.5 percent in April. These University of Michigan long-run inflation expectations figures begin to be downright scary.
Market Consensus Before Announcement
Sentiment expected unrevised at a super-low 48.2 in the final report for May, down from 49.8 in April and 52.2 a year ago. One-year inflation expectations also expected unrevised at 4.5 percent.
Definition
The University of Michigan's Consumer Survey Center questions households each month on their assessment of current conditions and expectations of future conditions. Preliminary estimates for a month are released at mid-month and are based on about 420 respondents. Final estimates are released near the end of the month and are based on about 600 respondents.
Description
The pattern in consumer attitudes and spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth.
This balance was achieved through much of the nineties and, in large part because of this, investors in the stock and bond markets enjoyed huge gains. It was during the late nineties that the consumer sentiment index hit its historic peak, reaching levels that were never matched during the subsequent 2001 to 2007 expansion nor during the long expansion following the Great Recession.
Consumer spending accounts for more than two-thirds of the economy, so the markets are always dying to know what consumers are up to and how they might behave in the near future. The more confident consumers are about the economy and their own personal finances, the more likely they are to spend. With this in mind, it's easy to see how this index of consumer attitudes gives insight to the direction of the economy. Just note that changes in consumer confidence and retail sales don't move in tandem month by month.
