The University of Michigan’s Consumer Sentiment index was unchanged at 98.8 in May, besting economist expectations for a modest decline.
Consumer sentiment has edged generally higher since the beginning of the year, bolstered by a strong labor market, rising home prices, and the near-term positive effects of tax cuts boosting worker paychecks. The assessment of the current state of the economy by consumers has been exceptionally strong for some time, despite modest slippage in the past few months.
Recent data shows signs of continued momentum in the economy. That strength is readily apparent in the 3.9% jobless rate (a 17-year low) and the continued decline in initial jobless claims, which recently fell to a level last seen in 1969 – just two examples that illustrate the strength in the U.S. economy.
Perhaps more notably, expectations in the near-term outlook are improving, despite the fact that most respondents expect further interest rate hikes to cool the pace of growth.
That expectation appears to be well founded given all indications from the Federal Reserve. At its last policy meeting, the Federal Open Market Committee held the funds rate unchanged, but policymakers continue to point to additional rate hikes in the pipeline before year end.
With more than two-thirds of U.S. economic activity driven by consumer spending, persistently strong consumer sentiment bodes well for both household spending and overall growth. The story for the U.S. economy remains a very good one.
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