Consumers Feeling More Upbeat in May

NEW YORK – A key gauge of U.S. consumer sentiment rose in May, stemming a sharp slide that began late last year and suggesting consumers may weather the U.S. economic slowdown despite a climate of rising unemployment.

The University of Michigan's final May consumer sentiment index, which measures consumers' attitudes about the economy, rose to 92.0 in May from 88.4 in April, down only slightly from the preliminary reading released mid-month, which was 92.6.

Economists surveyed by Reuters, on average, had been expecting a reading of 92.2.

"Stabilization is clear here," said Peter Kretzmer, senior economist at Banc of America Securities. He added that the report "argues toward smaller moves (and) more caution" from the Federal Reserve, which has slashed its target for short-term interest rates by 2.5 percentage points so far this year.

Stock and bond investors, still digesting a speech on the U.S. economy by Fed Chairman Alan Greenspan Thursday night and preparing for the U.S. Memorial Day long weekend, reacted little to the data.

Greenspan told a gathering of top Wall Street players Thursday evening that consumer sentiment was "fragile" but that it was also a difficult thing to measure accurately.

The Fed Chairman added that it was hard to track the relationship between consumer spending, which represents about two-thirds of overall U.S. economic activity, and the various indexes of consumer confidence.

"You assume basically that consumer confidence and retail sales move concurrently," Greenspan said. "It doesn't happen all the time. We're not that sure how to use those particular measurements."

Retail sales growth, although weakened compared with year-ago rates, has held fairly strong even as consumer sentiment dropped off sharply in recent months.

Analysts said a stabilization in consumer sentiment, therefore, does not necessarily mean a return to robust consumer spending in the months ahead, although it does paint a more positive picture for the economy,

"Consumers had really lowered their view (on the economy) but there's some increasing stability there," Banc of America's Kretzmer said.

The University of Michigan current conditions index, which measures how consumers feel about their personal financial picture, rose to 102.2 in May from 98.0 in April. This nearly reversed a sharp fall in April and was up slightly from a preliminary reading of 102.1.

The May expectations index, a barometer of how Americans feel about the twelve months ahead, rose to 85.4 in May from 82.2 in April. The preliminary reading was 86.5.

The University of Michigan consumer sentiment survey is published twice monthly, in preliminary and final series. The data are collected through 500 telephone interviews — roughly 250-300 for the preliminary series.