Consumers' Mood Rises As Pump Prices Fall

At least we’re saving money at the gas pump.

That seems to be the takeaway from the latest monthly read on the sentiment of American consumers by the widely watched Thomson Reuters/University of Michigan survey.

The index moved up to 79.3 in May, from 76.4 in April, bouncing off a deep bottom. Last August, when Congress nearly drove the Treasury into default, the index fell to levels of gloom normally seen in a deep recession.

Helped by an ongoing slide in gasoline prices, half of all consumers said the economy had improved during the past year. Buying plans for vehicles and household durables also improved, helped by expectations for bigger paychecks. Wealthier households are expecting their incomes to rise by 2 percent in the year ahead; lower income households expect just a 0.3 percent gain.

The main driver of the brighter outlook seems to be the very visible gains consumers are seeing when they buy gasoline.

“Pump prices have been falling since early April, helping improve consumer mood over the recent jitters of a volatile stock market and less than stellar job prospects,” said Yinbin Li, an economist at IHS Global Insight.

But analysts who track the ups and downs of consumer sentiment note that American households are still skittish as the economy stages its weakest recovery in a half century.

"Unfortunately, consumer confidence is still extremely vulnerable to a reversal, as occurred in the past two years," said survey director Richard Curtin. "While their most optimistic expectation for job growth could go unfulfilled without much harm, if the recent slowdown in job growth persists in the months ahead, it could form the basis for a third retreat in confidence."

The list of possible sentiment buzzkills includes another round of Congressional brinksmanship over the federal deficit, a looming man-made disaster being dubbed the “fiscal cliff.” Unless Congress acts by the end of the year, the economy will be subjected to the twin shocks of across-the-board tax increases and massive spending cuts.

The improvement in confidence has also followed a continued drop in the unemployment rate, which fell to 8.1 percent in April after peaking at 10 percent in late 2009. Economist say that decline will likely slow unless the pace of monthly job creation picks up from recent levels.

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