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US Consumer Confidence Unexpectedly Drops in May: Reuters/UofM

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US Consumer Confidence Unexpectedly Drops in May: Reuters/UofM

US consumer confidence in May fell from a nine-month high, as concerns about wage growth undermined an otherwise positive outlook.

The University of Michigan’s consumer sentiment index declined from 84.1 to 81.8, according to a preliminary estimate. A median estimate of market analysts called for a slight increase to 84.5.

Consumers’ appraisal of both the current situation and expectations slipped in May. The survey’s gauge of current economic conditions fell from 98.7 to 95.1. The barometer of consumer expectations declined from 74.7 to 73.2. One-year inflation expectations were unchanged at 3.2 percent, while the long-term inflation outlook slipped from 2.9 percent to 2.8 percent.

“The main concern behind the small May loss involved dispiriting trends in wages,” said survey director Richard Curtin in a statement. However, “consumers judged the current state of the economy at the most favorable levels in ten years.”

Wage growth was flat in April, the Labor Department reported two weeks ago. Year-on-year, average hourly earnings appreciated 1.9 percent.

Average hourly earnings had advanced 0.1 percent in March and at an annual pace of 2.1 percent, official data showed.

Economists expect confidence to accelerate further in the coming months, as broad improvements in the labour market boost consumer spending and overall confidence. The US economy generated a monthly average of 238,000 private payrolls between February and April. Job growth accelerated at the fastest pace in more than two years in April at 288,000.

A stronger jobs environment did not translate into stronger retail sales last month, official data showed. Receipts at retail stores increased only 0.1 percent in April, led by sharp declines at furniture, electronic & appliance stores, restaurants & bars, and online retailers. Economists forecast a gain of 0.4 percent following the biggest surge in four years.

Retail sales excluding automobiles were flat in April, the Commerce Department said.

Retail sales, which account for one-third of consumer spending, are used to gauge consumer confidence and willingness to spend money.

The slowdown in retail sales has not deterred economists from making strong growth projections for the second quarter. According to a May survey of economists conducted by Bloomberg, US gross domestic product may increase 3.5 percent between April and June.

Economic growth was marginal in the first quarter, as GDP advanced 0.1 percent, according to the government’s advance estimate. However, latest trade, construction and factory data suggest the economy actually contracted in the first three months of the year.

The Commerce Department will release its revised GDP estimate May 29.

The International Monetary Fund has pegged US growth at 2.8 percent in 2014. Federal Reserve Chair Janet Yellen said the central bank is not concerned about the first quarter slowdown, suggesting the economy will accelerate further this year.

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