NEW YORK: US consumer sentiment rebounded in early May to the highest level in nearly six years, an encouraging sign after recent data that has suggested economic growth is cooling.
A gauge of future economic activity released yesterday also suggested the expected slowdown would be temporary, with the index rising to a near five-year high in April.
Economists expect growth will likely slow in the second quarter from the 2.5 percent pace at the beginning of the year as tighter fiscal policy starts to bite. But recent stronger than expected improvement in several areas, including the labour market and retail sales, has suggested the recovery remains resilient.
“We’re still definitely on the recovery path. We expect that this is going to be a very long and gradual recovery,” said Scott Brown, chief economist at Raymond James in St Petersburg, Florida.
“Most economists are looking for stronger growth in the second half of the year and into next year.”
The Thomson Reuters/University of Michigan’s preliminary reading on the overall index on consumer sentiment rose to 83.7 from 76.4 in April, topping economists’ expectations for 78.
It was the highest level since July 2007.
Americans felt better about their financial and economic prospects, but the gains were particularly seen among upper-income households.
More consumers gave a favourable view of their personal finances than in anytime since 2007, with the largest gains among households in the upper third of income levels. More respondents also thought the economy would continue to improve in the year ahead.
Higher earners more frequently reported having less debt and higher asset values, though consumers were still not that much more optimistic they would see higher income in the year ahead.
Upper income households are more likely to be invested and therefore reap the benefits of the stock market rally that has taken the market to record highs this year. Since the beginning of 2013, the benchmark S&P 500 is up about 16 percent.
The rise in stocks may also be offsetting any hit to consumers following the expiration of the payroll tax holiday at the beginning of the year, which raised taxes for many Americans.
“For (upper income) people, the payroll tax and gasoline prices didn’t really matter much, but stock prices and home prices rising, that’s a big, big plus,” said Brown.
Reuters
