Consumer Sentiment in U.S. Fell More Than Forecast in May

Consumer confidence fell more than forecast in May, a sign consumer spending may be slow to pick up in the second quarter.

The Thomson Reuters/University of Michigan final index of sentiment dropped to 81.9 in May from 84.1 in April. The median projection in a Bloomberg survey of economists called for 82.5 after an initial May reading of 81.8.

Elevated gasoline prices and sluggish wage gains may be weighing on consumer sentiment. Government figures today showed consumer spending unexpectedly declined in April for the first time in a year as income growth slowed.

“Consumers seemed to pull back after a big surge in spending in February and March,” said Robert Stein, deputy chief economist at First Trust Portfolios LP in Wheaton, Illinois, who forecast a confidence reading of 82, among the closest projections in a Bloomberg survey. “We don’t think this will have a noticeable effect on the economy. Job growth is continuing, we’re still estimating around 200,000 for the payroll number in May, and as the unemployment rate declines, workers should start to see faster wage gains.”

Stocks fluctuated near record levels, with the Standard & Poor’s 500 Index rising less than 0.1 percent to 1,920.71 as of 10:31 a.m. in New York. Ten-year Treasury yields rose one basis point to 2.47 percent.

Estimates of the 62 economists in the Bloomberg survey ranged from 80 to 85. The index averaged 89 in the five years before December 2007, when the last recession began, and 64.2 during the 18-month contraction.

Current Conditions

The Michigan sentiment survey’s index of current conditions, which measures Americans’ views of their personal finances, declined to 94.5 in May from 98.7 a month earlier. The initial May figure was 95.1.

The gauge of expectations six months from now decreased to 73.7 from 74.7 last month. The preliminary May reading was 73.2.

Today’s data corroborates another reading on sentiment. The Bloomberg Consumer Comfort Index (COMFCOMF) declined last week to its lowest level since November, falling to 33.3 in the period ended May 25 from 34.1 the prior week, as Americans’ views of their finances and the buying climate weakened.

The Conference Board’s confidence index, meanwhile, rose in May to the second-highest level since 2008, reaching 83 from 81.7 a month earlier, the New York-based private research group said May 27.

Gas prices may be weighing on households. A gallon of unleaded gas at the pump cost $3.66 on May 29, down from a recent high of $3.70 in April yet up from the $3.49 average so far this year, based on data from motoring group AAA.

Payroll Gains

Gains in the job market may be helping consumers to feel more secure, however. Payrolls (NFP) climbed by 288,000 workers in April after a 203,000 increase the previous month, the Labor Department said earlier this month. The unemployment rate fell to 6.3 percent, the lowest since 2008, from 6.7 percent in March.

Greater confidence could lead to stronger consumer spending and spur demand for new homes, boosting the housing market, which has slowed in early 2014.

Sentiment is one thing Douglas Yearley, chief executive officer at Horsham, Pennsylvania-based luxury-home builder Toll Brothers Inc., is monitoring.

“Job growth, unemployment rates, macroeconomic issues, consumer confidence -- all of that has a ways to go,” Yearley said in a May 28 earnings call. “We have a ways to go until there is enough confidence out there for more and more people to come out to buy.”

Income Growth

Wage gains have been slow to materialize, and may be needed to help galvanize consumer activity. Income growth slowed to 0.3 percent in April from 0.5 percent the prior month and household purchases dropped 0.1 percent, a report today showed.

Better consumer spending could help the economy to expand in the second quarter, after it contracted for the first time since 2011 in the first. Gross domestic product fell at a 1 percent annualized rate, a bigger decline than first estimated, the Commerce Department said yesterday in Washington.

To contact the reporter on this story: Jeanna Smialek in Washington at jsmialek1@bloomberg.net

To contact the editors responsible for this story: Vince Golle at vgolle@bloomberg.net Mark Rohner

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