US Michigan Consumer Sentiment May Preview: The triumph of hope over experience?

• Consumer sentiment expected to slip 10-year low.
• Measures of current conditions and expectations forecast to rise.
• Stable sentiment may indicate a willingness to resume spending.
• Dollar to retain risk premium until signs of recovery surface.

Consumers are at the heart of the US economy in normal times and their outlook in the next few months will go a long way to determining whether the return to economic normality is a slow slog or a relatively swift resumption of life.

Americans have historically been an optimistic group preferring the future to the past and expecting their lives and their children’s to improve in the general order of things. 

In the pandemic recovery it is crucial that Americans resume their normal spending habits. If that happens businesses will regain their confidence, workers will be rehired and the two-thirds of the economy that is powered by consumption will energize the rest.  

Michigan consumer sentiment

The Michigan consumer sentiment index is forecast to dip to 68 in May from 71.8 in April.  The index for consumers’ views on their current economic conditions is expected to rise to 75 from 74.3 and the expectations is forecast to climb to 71.8 from 70.1.

Reuters

If these forecasts are accurate it may be a sign that that consumers do not expect the crisis to deepen and that given the chance may resume normal patterns of consumption.

The forecasts of  68 in sentiment, 75 for current conditions and 71.8 for expectations represent steep declines from their February pre-virus levels of 100.9, 113.8 and 92.6 respectively.  For the overall and current conditions indexes the May estimates are comparable to the four year averages from January 2009 to December 2012 of 69.65 and 78.36. The expectations May estimate, however, at 71.8 is notably higher than its 65.62 post-financial crisis average.

Reuters

This is perhaps a thin reed on which to base an entire recovery but it does suggest that the US consumer has not lost hope in a swift resolution to the current crisis.

Conclusion: Retail Sales and sentiment

The combined March loss of 8.4% and the projected April decline of 12% will come close to doubling, in two months, the half year drop of 12.4% leading up and into the financial crisis in 2008.

At two-thirds of US GDP, consumption dominates activity and the economy cannot recover if consumer spending does not revive. 

In this volatile and unusual moment the outlook of the average consumer matters a great deal more than the opinions of analysts, pundits, and politicians.