US consumer sentiment rebounds strongly in April, some economists cautious

Consumer’s mood picked up noticeably in April, the results of a widely-followed survey revealed, so much so in fact that some economists recommended taking the figures with a pinch of salt.

The University of Michigan’s consumer confidence index improved from a reading of 89.0 in the month before to 95.8, according to the preliminary results of the survey which are released nearer to the beginning of each month.

Analysts had forecast a smaller improvement to 89.5.

“This sharp move higher almost entirely reverses the deteriorating trend in household expectations that had taken hold in recent months. We are skeptical of the massive increase, given that only 375 consumer interviews were completed during the preliminary survey period. As such, we would not be surprised to see some retracement in expectations later this month,” Jesse Hurwitz at Barclays explained in a research mote sent to clients.

A sub-index tracking consumers’ expectations rose to a reading of 87.5 against 77.6 in the month before.

The ‘current-conditions’ gauge on the other hand increased from 106.7 to 108.6.

Inflation expectations looking twelve months ahead - one of the indicators followed by Fed policymakers - retreated sharply, from 2.8% to 2.5%.

“Better consumer sentiment should support a bounce back in spending in Q2, but we remain skeptical of the sharp move higher reported this morning,” Hurwitz argued.

Richard Curtin, the chief economist behind the survey, attributed the rebound in sentiment to more frequent income gains and a better outlook for the jobs market, on top of expectations for lower inflation and interest rates moving forward.

“The largest gains were recorded among lower income and younger households […] To be sure, the data still indicated the negative impact of uncertainty about future economic policies associated with the Presidential election, but its overall impact was overwhelmed by favourable economic developments,” he said in a statement.

“It is too early to judge the potential impact of the election on consumers’ expectations, and one month’s rebound in consumer confidence is insufficient to increase the current forecast for inflation-adjusted consumer expenditures from 2.5% during 2016.”