Consumer Sentiment Unaffected by Tax Rebates
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The first monthly reading for consumer confidence in May failed to show any improvement despite the beginning of the fiscal stimulus tax rebates, economists say. The preliminary consumer sentiment survey from Reuters and the University of Michigan tumbled beyond the previous month's 26-year low, falling to 59.5 from April's 62.6.
The last time the survey reached below 62.0 was in March 1982 and the historic low of 51.7 was reached in May 1980.
David Resler, chief economist at Nomura Securities, said there is no economic data to justify a resurgence of confidence yet. Oil prices haven't been this high before, and with housing prices continuing to decline, consumers will continue to feel pessimistic about the economic outlook, he said.
Even the fiscal stimulus package may not have much effect, he added, as consumers have known about the tax rebates for a while now and may have already priced in how it will affect them a long time ago.
One-year inflation expectations moved up yet again to 5.2% from last month's 4.8%. Just three months ago, inflation expectations were at 3.6%.
Haseeb Ahmed, U.S. economist at JPMorgan, said the fiscal stimulus package will obviously help consumer spending, but it remains to be seen whether it will boost sentiment at all. In the 2001 recession, sentiment didn't improve after tax rebates were issued to consumers, he said.
Ahmed said the five-year inflation expectations are worth noting, particularly because the Fed looks at that data. In Friday's report, that index moved up to a "concerning" 12-year high at 3.3%, up one-tenth from last month and up four-tenths since March.
Consumer expectations fell to 51.7 in May from 53.3 in the prior report, while the current conditions index fell to 71.7, down from 77.0 in the final report last month.
Earlier in the week, the weekly consumer comfort report from ABC News and the Washington Post posted a one-point loss to come in at -47, tying its all-time lowest record.
By Patrick McGee, pmcgee@economicnews.ca, edited by Nancy Girgis, ngirgis@economicnews.ca
©CEP News Ltd. 2008
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