MARKET TRENDS: Consumer Sentiments Rises, Index at Five Month High

The U.S. economy is firming up with a series of positive economic numbers. The June Consumer Sentiment hit it a five-month high on Friday, following the solid Personal Income and Spending report on Thursday. The sharp rise in consumer sentiments was buoyed by a stronger job market and an improving wage rate. The University of Michigan’s final June reading on the overall Consumer Sentiment Index was at 96.1 in June, up from 90.7 in May and market expectations of 94.6. The June reading was the second-highest since January 2007, and the increase of 5.4 points from May was the largest since December 2013.

The Michigan Current Conditions Index, a gauge of consumers’ views of their personal finances, shot up to 108.9 from 100.8 in May. This was higher than the consensus expectations of 106.7. The rise indicates that consumers positively assessed their current and future finances during the first half of 2015. An increasing income level should further boost consumer spending, which touched its record high on Thursday.

The survey’s final June index of consumer expectations six months from now moved up to 87.8 in June from 84.2 in May, and better than expectations of 86.9. Consumers are confident of the growth in the U.S. economy with a strengthening labor market, a better wage growth, and stabilizing fuel costs.

In the next 12 months, consumers can expect an inflation rate of 2.7%, slightly down from 2.8% in May. For the long-term period of the next five to ten years, consumers anticipate an inflation rate of 2.6%, matching the lowest since 2002. Increasing employment has led to higher consumer confidence and spending. As per the Michigan survey, consumers believed favorable buying conditions in the first half of 2015. Purchases were up 0.9% in May, the biggest gain since August 2009, the Commerce Department said on Thursday. It was driven by higher auto sales, which was at its best since 2007. Retail sales were up by a robust 1.2% in May following a 0.2% rise in April. Nonfarm payrolls were at a five months high in May, with a 2.3% increase in hourly pay from the year-ago period.

However, the Fed is awaiting further evidence for a stronger economy to justify an increase in the short term interest rates. The growth in Gross Domestic Product shrunk to 0.2% in the first quarter, revised from the initial estimate of a 0.7% drop. GDP is expected to bounce back to a range of 2% to 3% going forward.

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