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U.S. Conference Board’s consumer sentiment index rises in May

The U.S. Conference Board’s index of consumer sentiment rose in May to 86.6, from a revised 85.7 in April. After a sharp fall in sentiment for two straight months beginning from March, the index appears to have steadied for now, and is widely consistent with expectations of 87.

The Expectations Index rebounded to 96.9 in May, possibly reflecting some optimism about the phased reopening of the economy in certain parts of the nation. However, the Present Situation Index dropped modestly to 71.1 in May from April’s 7, in line with the current macroeconomic backdrop of high unemployment and uncertain income prospects.

“As the economy continues to gradually reopen, we expect consumers to gain more confidence about their income and employment prospects. However, there remains a large amount of uncertainty with respect to the speed and quality of the recovery. We continue to expect real consumption spending to register a substantial decline (-40 percent q/q saar) in the second quarter”, noted Barclays in a research report.

The Present Situation Index has dropped the most since February, reflecting the impacts of the pandemic. This was due to less positive assessments of the current employment, business and income conditions, in line with the soft economic activity. The Expectations Index dropped just 11.2 points since February, with most of the fall having occurred in March.

“Consumers seemed to have turned slightly positive about their employment prospects and business conditions six months ahead in May, likely in the hope that a reopening of the economy would bring back jobs and normalize business conditions. Income expectations have also improved from the April low, but remain well below pre-COVID-19 levels. In our view, there is still a long way to go before we see complete recovery in consumer confidence”, added Barclays.

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