U.S. consumer sentiment rose to its highest level in more than four years in early May as Americans remained upbeat about the job market, a survey released on Friday showed.
Separate data earlier in the day showed U.S. producer prices unexpectedly fell in April as energy costs dropped by the most in six months, a sign of easing inflation pressures that could give the Federal Reserve more room to help the economy should growth weaken.
The Thomson Reuters/University of Michigan’s preliminary May reading on the overall index on consumer sentiment improved to 77.8 from 76.4 in April, topping forecasts for a small decline to 76.2.
It was the highest level since January 2008.
Despite the recent slowdown in job growth, nearly twice as many consumers reported hearing about new job gains than said they had heard about recent job losses, the survey said.
Even so, consumers were only slightly more optimistic about declines in the unemployment rate than they were a year ago, with only one in four expecting it to fall in the year ahead.
However, economists polled by the Philadelphia Federal Reserve, expect the U.S. unemployment rate to average 8.1 per cent this year, and to fall to 7.7 per cent next year.
Employers cut back on hiring in April and March after an acceleration at the start of the year. April’s unemployment rate eased to 8.1 per cent as more people dropped out of the work force.
In a potential harbinger of increased spending, consumers’ buying plans for vehicles and durable goods improved at the beginning of the month, with 65 per cent saying buying conditions were favorable, the highest level in more than a year.
“Households are feeling more comfortable. It’s pretty good news for consumer spending,” said Gus Faucher, senior macroeconomist at PNC Financial Services in Pittsburgh.
U.S. stocks were little changed in mid-morning trading, weighed down by the revelation of JPMorgan Chase Co.’s $2-billion (U.S.) trading loss.
Also on Friday, the Labor Department said its seasonally adjusted producer price index dropped 0.2 per cent last month. That was the first drop this year and the biggest decline since October.
“Looking ahead consumer prices should remain contained,” said Michelle Meyer, an economist at Bank of America Merrill Lynch in New York. “The Fed shouldn’t be worried about inflation.”
Economists polled by Reuters had expected prices at farms, factories and refineries to be flat last month.
A rise in gasoline prices last year pinched consumers and fueled higher inflation, but the Fed has maintained that the spike would be temporary. A report on consumer prices due next week is expected to give further signs that inflation is ebbing.
Still, the annual inflation rate targeted by the Fed continues to hover around the central bank’s 2-per-cent goal, and Friday’s price data did not appear to change investor’s views on the outlook for monetary policy.
A number of Fed officials appear loath to take further action to help the economy, with some arguing the central bank needs to get ready to being withdrawing its extraordinary stimulus. The Fed has maintained since January that it expects economic conditions to warrant holding overnight interest rates near zero through at least late 2014.
The consumer sentiment report showed Americans’ inflation expectations continued to ease after a run-up in March. The one-year inflation expectation fell to 3.1 per cent from 3.2 per cent, though the five-to-10-year outlook edged up to 3 per cent from 2.9 per cent.
“This is good news for the Fed. It gives them still room (to) maneuver in the year ahead,” survey director Richard Curtin told Reuters Insider.
The report on producer prices for April showed wholesale prices 1.9-per-cent higher in April than a year earlier, the weakest reading since October 2009.
The drop in PPI was due to a 1.4-per-cent decline in energy prices, the biggest drop since October. Gasoline costs slumped 1.7 per cent while prices also fell for residential natural gas and liquefied petroleum gas.
Wholesale prices excluding volatile food and energy costs rose in line with economist’ expectations, up 0.2 per cent after March’s 0.3-per-cent gain.
Fueling gains in the core index, wholesale pharmaceuticals prices gained 0.4 per cent. Higher prices for civilian aircraft also pushed up core prices.
In the 12 months to April, core producer prices increased 2.7 per cent after rising 2.9 per cent the previous month. April’s reading was the lowest since August and just below analysts’ expectations.
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