Favorable spending outlook for 2015 despite May decline in consumer optimism

ANN ARBOR—Consumer optimism retreated in May as consumers adopted more modest prospects for a rebound following the economy’s dismal 1st quarter performance, according to the University of Michigan (U-M) Surveys of Consumers. Conducted by the U-M Institute for Social Research (ISR) since 1946, the Surveys monitor consumer attitudes and expectations. The data are available non-exclusively via Bloomberg.University of Michigan Surveys of Consumers logo

The decline was widespread among all age and income subgroups as well as across all parts of the country, according to U-M economist Richard Curtin, who directs the Surveys.

Despite the May decline, the Sentiment Index has averaged 94.6 during the first five months of 2015. The last year that the Sentiment Index was higher was 2004, when it averaged 95.2. Overall, the latest data are still consistent with a 3 percent annual growth rate in personal consumption expenditures during 2015.

“Price perceptions for a wide range of goods have grown less positive despite low overall inflation,” said Curtin. “This reflects a downward revision in what consumers judge to be affordable prices due to the lower income growth rates they now expect. While low interest rates continue to boost home and vehicle purchases, smaller retail purchases have not benefited from low rates. The modest pace of income growth now expected by consumers will increase smaller retail purchases as long as consumers do not anticipate significant increases in interest rates that cause anticipatory buying of homes and vehicles which will act to limit other retail sales gains.”

Spring’s Economic Revival Falls Short
Consumers more frequently reported hearing unfavorable than favorable news about the economy in the May 2015 survey. Consumers judged the pace of growth to have remained sluggish and did not anticipate the same rapid revival in the economy as happened last year. Importantly, half of all consumers still thought the economic outlook was favorable. The main drawback to the slower pace of growth was that consumers anticipated only marginal future reductions in the rate of unemployment.

Personal Finances Still Expected to Improve
There was a slight decline in the number of households who reported improved finances in the May survey, largely due to a slower pace of income gains. Nonetheless, consumers remained quite optimistic about their future financial situation as they anticipated income gains twice as large as they did in last May’s survey. Overall, 86 percent of all households anticipated their financial situation would be the same or improve during the year ahead, while just 12 percent of all households expected their finances to worsen.

Consumer Sentiment Index
The Sentiment Index was 90.7 in the May 2015 survey, down from April’s 95.9 but significantly above last May’s 81.9. The Current Conditions Index was 100.8 in May, between the 107.0 in April and last May’s 94.5. The Expectations Index fell to 84.2 in the May 2015 survey from 88.8 in April, but was still substantially above last May’s 73.7.

About the Surveys
The Survey of Consumers is a rotating panel survey based on a nationally representative sample that gives each household in the coterminous U.S. an equal probability of being selected. Interviews are conducted throughout the month by telephone. The minimum monthly change required for significance at the 95 percent level in the Sentiment Index is 4.8 points; for Current and Expectations Indices the minimum is 6.0 points.

Contacts
Diane Swanbrow, swanbrow@umich.edu, (734) 647-9069
Surveys of Consumers, (734) 763-5224 www.umich.edu/~umsurvey

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