U.S. consumer sentiment jumps to highest in nearly a year

Americans turned more optimistic about the economy in May than the previous month, buoyed by steady hiring and higher incomes.


The University of Michigan said Friday that its index of consumer sentiment rose to 94.7 in May, the highest in nearly a year. That’s up from 89 in April.

The increase could drive greater economic growth, as a more optimistic consumer is typically more likely to spend. Consumer spending accounts for roughly 70 per cent of U.S. economic activity. The economy slowed to a crawl in the first three months of this year, growing just 0.8 per cent at an annual rate. Yet most analysts expect growth to rebound in the April-June quarter.

Richard Curtin, chief economist for the survey, said the sentiment index has been higher than last month’s reading only four times in the last 110 surveys.

Americans are also feeling better about their finances. More consumers cited income gains than at any time since late 2000, Curtin said, and fewer people complained about price increases than at any time since 2003. That means inflation is less of a concern.

Still, the survey detected some notes of caution, stemming from the presidential election. The economic policies of the next president were cited by consumers as their biggest uncertainty.

“This will temper consumer spending by acting to maintain a higher level of precautionary savings,” Curtin said.

The survey also included some positive news for the housing market: More Americans are confident that they can sell their homes at healthy prices.

That suggests one factor that has held back housing could be fading. Even as home prices have risen for several years, many homeowners still owed more on their mortgages than their homes were worth, making it difficult to sell. Others had so little equity that selling would have left them little or no down payment for a new home.

Those trends have limited the number of homes available for sale, which in turn has pushed up prices and made many homes unaffordable to would-be purchasers, particularly younger first-time buyers.

Yet now, more Americans expect they can sell their homes for prices that will be high enough to avoid losses, Curtin says. That could result in more homes being listed for sale and provide an additional boost to the housing market during the spring and summer buying season.

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