Consumer Sentiment: Rebound, Inflation Expectations Hit 3%

Bottom Line: The preliminary reading from the University of Michigan's consumer sentiment survey rose, besting expectations for a further decline. However, the inflation expectations for the next year were the most notable, jumping to 3% from 2.1%. While this series can be volatile, and there's a history of consumers unjustifiably worrying about inflation during periods of contraction, this bears watching going forward. 3% is near the highest level of the last five years, and longer-term inflation expectations ticked higher too. Personal financial prospects for the year ahead fell to the lowest level in almost six years, with declines especially sharp among upper-income households. On the plus side, consumers saw improved buying conditions due to discounted prices and low interest rates, although their impact was partially offset by uncertainties about job and income prospects. Overall, consumer sentiment remains depressed -- and while still more optimistic on future conditions than the current situation, consumers are clearly expecting a lasting impact on their personal finances and job prospects from the shock of the shutdowns for the novel coronavirus. Consumer Sentiment ROSE by 1.9 points in early May to 73.7%, compared with market expectations for a decrease to 68.0%. Despite this month's slight increase, sentiment is now 26.3% BELOW its year-ago level. Current Conditions ROSE by 8.7 points to 83.0%. This is 24.5% BELOW their year-ago level. Consumer Expectations FELL by 2.4 points to 67.7%. With this month's modest decline, expectations are 27.6% BELOW its year-ago level.