Buoyed by falling gas prices and a strong labor market, consumer sentiment jumped "unexpectedly" in early April to hit a three-month high, according to the University of Michigan's sentiment index.
Due to continued inflation, economists had expected the sentiment index to continue its downward trend to 59 after a final reading of 59.4 in March. Instead the index rose to 65.7 in early April, a reversal that marked the measure's first improvement since December.
The 10.6% bump in sentiment was primarily fueled by improved consumer expectations.
"A strong labor market bolstered wage expectations among consumers under age 45 to 5.3%—the largest expected gain in more than three decades, since April 1990," wrote Richard Curtin, chief economist for the Surveys of Consumers.
Consumers also expect the national unemployment rate will continue to "inch downward," which has boosted their perception of the overall economy.
Another positive sign: Consumers are also starting to feel more optimistic that the surge in gas prices is slowing, a reaction to falling fuel prices that was "immediately recognized" at the pump.
"Perhaps the most surprising change was that consumers anticipated a year-ahead increase in gas prices of just 0.4 cents in April, completely reversing March's surge to 49.6 cents," Curtin writes. "Retail gas prices have fallen since the March peak, and that fact was immediately recognized by consumers."
President Joe Biden moved aggressively in late March to release 1 million barrels of oil a day from U.S. strategic reserves in order to ease Americans' pain at the pump—a gamble that appears to have paid dividends for now.
Curtin cautioned, however, that April's relatively modest gains in sentiment remain "too close to recession lows to be reassuring." Continued economic uncertainty, new COVID-19 variants, and the war in Ukraine still pose significant risks to consumers' overall economic outlook.
All that being said, trending up is certainly preferable to trending down.
Republished with permission from Daily Kos.
