U.S. consumer sentiment rose to its highest level in more than four years in May as Americans stayed positive about the job market, while higher-income households were optimistic on wage increases, a survey released on Friday showed.
The Thomson Reuters/University of Michigan’s final reading on the overall index on consumer sentiment rose to 79.3 from 76.4 in April, topping forecasts for 77.8 and an initial May reading of the same.
It was the highest level since October 2007.
“Unfortunately, consumer confidence is still extremely vulnerable to a reversal, as occurred in the past two years,” survey director Richard Curtin said in a statement.
“While their most optimistic expectation for job growth could go unfulfilled without much harm, if the recent slowdown in job growth persists in the months ahead, it could form the basis for a third retreat in confidence.”
Half of all consumers said the economy had improved during the past year, while buying plans for vehicles and household durables also improved. The gauge of buying plans rose to 132 from 126.
But a substantial gap in how much wages are expected to increase this year showed a divide between lower and higher income households.
Those with income over $75,000 (U.S.) anticipated a 2-per-cent income increase in the year ahead, while lower-income households expected just a 0.3-per-cent gain.
“You’ve got a variety of forces working on consumer sentiment at this point. You’ve got obviously concerns about Europe, the economy in general, lower stock prices – all those are a negative,” said Scott Brown, chief economist at Raymond James in St. Petersburg, Florida.
“But lower gasoline prices are a plus, so I think that’s probably part of the factor that you’ll see an increase in purchasing power if gasoline prices continue to move down.”
The survey’s barometer of current economic conditions jumped to 87.2 from 82.9, while its gauge of consumer expectations improved to 74.3 from 72.3.
The indexes where at their highest levels since January 2008, and July 2007, respectively.
Financial markets saw little reaction to the data, with Wall Street little changed in morning trading as investors shied away from risky assets after fresh warnings about Greece.
The survey’s one-year inflation expectation eased to 3.0 per cent from 3.2 per cent, while the survey’s five-to-10-year inflation outlook dipped to 2.7 per cent from 2.9 per cent.