May economic data: Green shoots, mixed with weeds
First, the Reuters/University of Michigan Surveys of Consumers said its consumer sentiment index for May increased to 68.7 from 61.9 in April, Reuters reported Friday. Moreover, it was the sentiment index's highest reading since September 2008, or just before the global financial crisis intensified in October 2008. The index has been registering steady gains, rising from 57.3 in March and 56.3 in February, Reuters reported. The index's record low of 51.7 was set in May 1980. Economists surveyed by Bloomberg News had expected the index to rise to 68.0 in May.
Joel Naroff, president of Naroff Economic Advisors in Pennsylvania, said the May Reuters/University Michigan sentiment index rise definitely classifies as a green shoot.
"While we cannot say that optimism reigns, it certainly is coming back," Naroff told Bloomberg News Friday. The report "creates the hope that consumer spending will start picking up this quarter."
However, another closely-watched index did not fare as well. The Chicago Purchasing Managers Index fell to 34.9 in May from 40.1 in April, the Institute for Supply Management announced Friday. Readings above 50 indicate an expansion; under 50, a contraction.
A Bloomberg News survey had expected the Chicago PMI to rise to 42 in April. The index was at 31.4 in March.
Finally, as expected, U.S. inflation remains mild, according to data released Friday by the U.S. Commerce Department. In its Q1 GDP report, which showed that the U.S. economy contracted 5.7 percent, consumer prices fell 1 percent, while the core rate (which excludes the often-volatile food and energy component) rose 1.5 percent. Each is within the U.S. Federal Reserve's "comfort zone" for inflation.
Economic Analysis: Two positives and one negative stat regarding the recent data points for the U.S. economy. The most encouraging may be the rise in consumer sentiment: consumers expect conditions to improve, and that will play no small role in the recovery. If consumers feel more confident about future economic conditions (such as their job, the prospects for improving business conditions), they may make a purchase of a durable good (such as a washer-drier or a riding mower, for that matter). Such a decision, replicated en masse, will help pull the U.S. economy out of the recession. Or as economists say regarding macroeconomic patterns, "Psychology is destiny."