Final Index of Consumer Sentiment in May Drops -6.1% Month-Over-Month; Rises 14.7% Year-Over-Year

The University of Michigan released today (5-28-21) its final Index of Consumer Sentiment (ICS) for May 2021. Month-over-month, the ICS declined -6.1% from 88.3 in April to 82.9 in May. When compared to May 2020, the ICS increased 14.7% from May 2020 reading of 72.3. Current Economic Conditions (CEC) declined -8.0% from 97.2 in April to 89.4 in May. When compared to May 2020, the CEC increased 8.6%. The Index of Consumer Expectations (ICE) declined -4.7% from 82.7 in April to 78.8 in May. When compared to May 2020, the ICE increased 19.6%. In remarks prepared for the release of the final ICS for May 2021, Richard Curtin, Survey of Consumers Chief Economist said, “Consumer confidence remained largely unchanged at the reduced level recorded at mid-month. It is hardly surprising that the resurgent strength of the economy produced more immediate gains in demand than supply, causing consumers to expect a surge in inflation. Record proportions of consumers reported higher prices across a wide range of discretionary purchases, including homes, vehicles, and household durables — the average change in May vastly exceeds all prior monthly changes (see the chart). The impact of higher prices on discretionary spending will be offset by the more than $2 trillion increase in savings in the past year as well as by improving job prospects — an all-time peak proportion of consumers anticipated declines in the national unemployment rate during the year ahead. While higher inflation will diminish real incomes, the gains in spending will nonetheless be substantial. The key issue is whether the timing of spending decisions will advance due to the expected price increases. At present the growth in inflationary psychology is unlikely, but it cannot be completely dismissed. Early preventative actions are much less costly, but these actions are much more difficult when policy objectives include avoiding uneven distributional impacts across population subgroups. It will require keeping the level of stimulus higher for a longer period than would have seemed prudent in the past. The primary risk of this strategy is an accelerating inflation rate, which also has uneven distributional impacts. Shifting policy language and a small rate increase could douse inflationary psychology; it would be no surprise to consumers, as two-thirds already expect higher interest rates in the year ahead.”

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Original Source:
Final Results for May 2021