U Mich: Consumer Sentiment Slipped in May

The mood of U.S. consumers dampened a bit in May from April, but the final May reading on consumer sentiment was more upbeat than reported in the middle of the month as gasoline prices eased and the job market appeared firmer, the University of Michigan (search) said Friday.

The University of Michigan said its measure of confidence had slipped to 86.9 in May from 87.7 in April, according to market sources who saw the subscription-only report.

But the final reading for May was higher than the preliminary reading of 85.3 reported two weeks ago.

"Consumers are not euphoric over the economy, but confidence is slowly improving," said Lynn Reaser, chief economist at Investment Strategies Group at Bank of America (BAC). "Since the preliminary number was released in early May, we've seen further signs that the job market is firmer, and gasoline prices have slowly drifted lower."

A better stock market performance in the last few weeks also fed the improving sentiment in May, Reaser said.

"Consumers are still not as upbeat as April, but are becoming more encouraged than they had been earlier in the month," Reaser said. "If we look at home, auto, and general retail sales, consumers seem even more optimistic than suggested by the confidence surveys."

"No one is backing away from spending," concurred David Wyss, chief economist at Standard & Poor's Ratings Services (search). "Maybe things are bottoming out with gasoline prices topping out. Things seem to be stabilizing in the consumer sector."

Analysts had forecast a final May reading of 86.0, slightly below the actual final reading.

Meanwhile, the survey's expectations component slipped to 75.3 in May from 77.0 in April, while sentiment on current conditions rose slightly to 104.9 in May from 104.4 in April.

Consumer spending accounts for two-thirds of overall U.S. economic activity, and improved confidence is seen as a precursor to stronger growth.

However, in recent years the correlation between confidence and retail sales has weakened, with consumers buying new cars and homes even as they send more mixed signals in surveys.