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Consumer Sentiment Backs Off of Nine-Month High

clippedA first look at consumer confidence levels for May shows overall sentiment retreating from a nine-month high as the cost of living crept up nationally.

In a preliminary report issued last week, Thomson Reuters and the University of Michigan reported a decline in their joint Index of Consumer Sentiment to a reading of 81.8 from April's final reading of 84.1.

Economists surveyed by Bloomberg had expected an increase in the index, forecasting a preliminary value of 84.5.

The drop in the headline index accompanied a 0.3 percent rise in the Labor Department's Consumer Price Index for April, reflecting increases in food and gas costs.

A large portion of the overall decline came from a decrease in the survey's Current Conditions Index, which measures consumers' perceptions of their financial situation at the moment. Registering 95.1 in the first May report, the index fell more than three points from the end of April—an unexpected drop, says economist Paul Diggle at Capital Economics.

"That looks a little odd given that this index tends to reflect conditions in the labour market, which are improving," Diggle said. "But concerns over a slowdown in the housing market may have weighed on sentiment."

March data released throughout the latter half of April painted a bleak picture for housing, with existing-home sales dipping 0.2 percent and new home sales plunging 14.5 percent month-over-month.

Meanwhile, the gauge measuring consumer expectations for the next six months also declined, falling to 73.2 from 74.7 in April.

Though the latest report is hardly encouraging, Diggle said a more promising jobs outlook should boost consumer sentiment in the months ahead, as should April's improved housing metrics.

"Looking ahead, the further improvement in the labour market demonstrated by the decline in initial jobless claims last week to a seven-year low should support consumer confidence," he said. "The pick-up in the housing recovery, signalled by the increase in housing starts back above the one million mark in April, should help too."

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