By Michaela Ross
Consumer sentiment is expected to rise this month against the backdrop of a strengthening labor market and wage gains.
Predictions for Friday’s University of Michigan’s consumer sentiment index ticked up to 96 from April’s preliminary read of 95.9 and March’s 93. Sentiment has been declining this year since peaking at an 11-year high of 98.1 this January.
The rise in confidence will most likely come from new heat in wages and the jobs market.
By the end of April, initial jobless claims had plummeted to 262,000, their lowest level in 15 years. The four-week moving average of claims dropped to about 284,000. The same Labor Department report showed the number of people receiving jobless benefits also fell earlier this month to its lowest level since December 2000.
Meanwhile, the latest job openings report showed 5.1 million open positions in February – the most since January of 2001.
“I think that it’s clear that we’re seeing improvement in labor market conditions, so overall that’s very positive,” said Mike Carey, chief economist North America for Crédit Agricole.
Salaries are also strengthening this spring. The employment cost index, considered the broadest measure of labor costs, rose 0.7 percent in the first quarter and was up 2.8 percent over the last year – its biggest gain in six years.
Other economic indicators this month seem to reflect a bolstering in confidence. Retail sales rose 0.9 percent, consumer spending was up 0.4 percent, durable goods orders increased 4 percent and housing starts clicked up 2 percent.
But earlier this week another consumer confidence indicator dropped below even the most pessimistic expectations. The Conference Board’s index came in at 95.2 compared to March’s 101.4.
A slight rise in gas prices from last month may explain this, as might consumers’ continued wariness about expecting income growth this year, which remained a soft spot in the University of Michigan’s preliminary sentiment index mid-month. But pressure on wages is set to increase as the job market tightens.
“It’s easy for consumers to become less faithful about that prospect just because wage growth has been restrained so much throughout the recovery so far,” said Thomas Simons, money market economist at Jefferies LLC. “I think that they’re probably going to need to see it to believe it on the confidence front.”
All eyes will be watching next week’s jobs report for an increase in average hourly earnings. This figure grew 2.1 percent year-over-year through March, which is in line with the recovery’s pace over the past six years.