• Sentiment and expectations indexes at 15 year highs
  • Wages, job creation and economic growth prompt optimism
  • China trade dispute has had small impact on consumers

American optimism soared to its highest level in 15 years as consumers anticipated that their economic future would be even better than the present. 

The University of Michigan preliminary sentiment index jumped to 102.4 in May, its strongest score since January 2004 and far above analysts’ 97.5 median prediction.  All of the increase was due to the expectations index which at 96.0 also reached a 15 year high, almost ten points above the April’s 87.4 reading.  The forecast had been for a drop to 86.8. The current conditions index rose to 112.4 from 112.3 in April. The final revisions will be released on May 31st.

Reuters

Reuters

The factors most important to consumer’s view of the economy and their household circumstances are as positive as they have been since the financial crisis and recession.

First quarter economic growth surpassed all expectations at 3.2%, a sharp improvement over the fourth quarter’s 2.2%. This helped to alleviate concerns that last year’s declining GDP rate from 4.2% in the second quarter to 2.2 in the fourth was a sign that the tax reform and spending legislation from 2017 had failed to raise the baseline expansion the US economy.

Wages and more tellingly the gains in real wages, nominal corrected for inflation, have reached their best levels in more than two years.

Reuters

The improvement since last summer has been driven by sustained wage increases over 3% and a modest decline in inflation rather than by a large decrease in inflation.  

Improvements in wages in any business cycle are rarely rescinded and from a consumer point of view are far more stable and likely to boost spending and sentiment than any temporary rise in purchasing power brought on by a fall in prices.

Payrolls have resumed a steady creation of new positions. March produced 189,000 jobs and April 263,000. The February slip to 56,000 was the occasional off month that is not-uncommon in this series.  

Reuters

Unemployment at 3.6% and the initial jobless claims 4-week moving averge of 212,250 reinforce what most American understand is the best labor market in 50 years, better in many respects, than the last term of the Clinton administration.  

The US trade confrontation with China began almost 18 months ago and it has had little or no effect on consumer attitudes.

In comparison the government shutdown in late December and January prompted a dramatic drop in consumer optimism which disappeared as soon as the closure ended.  

The break in trade talks with China, though not yet a breakdown of negotiations, is too recent to be reflected in the May Michigan Survey. But even when Americans have had a month or two to contemplate its effects, their opinion is unlikely to change. Unless the trade conflict begins to affect the job market and wages through increasing layoffs, the modest price increases on assorted consumer goods that will be its largest visible effect will be lost in the general economic wellbeing.

Despite the alarm expressed in the May Michigan Survey statement about the “corrosive impact of an escalating trade war,” April’s statement was probably more instructive when it noted that "60% [of respondents] reported…that they expected to be better off financially over the next five years. That was the highest proportion ever recorded.”

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.

Feed news

Latest Forex Analysis

Editors’ Picks

EUR/USD recovery reaches critical 1.1170 price zone

The EUR/USD pair bounced from a fresh multi-year low of 1.1106, although the advance stalled in the 1.1170 region, with the pair having been unable to extend gains beyond it since last Friday. Bulls to become more courageous if the advance extends beyond 1.1200.

EUR/USD News

GBP/USD modestly up for the day after flirting with 1.2600

The GBP/USD pair is poised to close in positive ground for the first time in ten days, a result of an extremely overbought dollar and US data giving bulls a reason to take some profits out of the table. Brexit chaos persists, Pound gains unlikely.

GBP/USD News

USD/JPY trades at weekly lows near 109.70 as risk aversion dominates

The USD/JPY pair met a renewed selling pressure in the American trading hours amid intensifying flight-to-safety and touched its lowest level in a week at 109.68.

USD/JPY News

Market confidence in doldrums as PMI surveys plummet

US and German PMI surveys failed to muster any form of confidence in the growth picture, with stocks and the dollar under pressure today. The UK political picture looks bleak, with the chances of a no-deal Brexit or general election rising with May’s departure. 

Read more

Gold jumps to weekly tops and retreats, still well bid near $1280 level amid risk-off mood

Gold built on its intraday positive move and spiked to fresh weekly tops, around the $1284 region in the last hour, albeit retreated a bit thereafter.

Gold News

Majors

Cryptocurrencies

Signatures