Consumer Sentiment Drops with Wage Expectations

In contrast to a release earlier in the week showing an increase in consumer confidence, the University of Michigan's Index of Consumer Sentiment retreated in May as Americans expressed little hope for income growth.

The index, released monthly by UMich and Thomson Reuters, fell back to 81.9 from April's final level of 84.1 and May 2013's 84.5.

Even with the decline, however, the index still fared better than the average level of 81.7 through the prior four months, with survey respondents demonstrating greater confidence in the labor market as payrolls pick up from early 2014.

"The small May loss should not detract from the fact that consumer confidence during the first five months of 2014 was higher than anytime during 2007," said economist and survey director Richard Curtin.

The survey component measuring sentiment about current conditions ended the month at 94.5, down from 98.7 a month prior.

Meanwhile, the expectations index declined slightly to 73.7 from 74.7 previously, largely due to "dismal prospects for wage growth," according to the report.

When asked about their financial prospects, only a quarter of consumers expressed hope for an improved financial situation, and only half expect gains in income, with increases of 1 or 2 percent most commonly expected.

On the subject of housing, views were mixed, according to the report: "While home buying conditions were viewed less favorably, it was offset by improved home selling conditions, largely due [to] the rising value of owned homes."