According to the first estimate, University of Michigan consumer confidence improved further in May, while the consensus was looking for a marginal weakening. The headline index rose from 76.4 to 77.8, reaching its highest level in more than four years. The breakdown shows that the improvement was based in the economic conditions sub-index (87.3 from 82.9), while the economic outlook weakened slightly (71.7 from 72.3). Consumers’ one year ahead inflation expectations eased slightly (3.1% Y/Y from 3.2% Y/Y), while 5- year ahead inflation expectations increased to 3.0% Y/Y from 2.9% Y/Y.
The further improvement in consumer confidence is quite surprising to us as recent economic data were mixed and hiring was somewhat slower. Nevertheless, the brightening in consumer sentiment might be due to the recent decline in the oil price, giving consumers more spending power.