US DATA: Final UMichigan Slightly More Benign, But Sentiment Still Subdued

The final University of Michigan consumer survey for May saw a modest downward revision to inflation expectations to still-elevated levels, with slightly better overall sentiment than previously recorded.

• Final 1Y inflation expectations were 5.0%, down from 5.1% in the prelim and reversing the tariff-impacted April-May rise to 6.50-6.60%. It's still elevated versus high 2s late in 2024 but looks to be fading. 5-10Y expectations meanwhile were also revised down 0.1pp, to 4.0%, down from 4.2% in May and 4.4% in April but above the 2024 average of 3.0%. Expectations had been for 1Y to tick up to 5.2% with 5-10Y steady with 5-10Y steady at 4.1%, so the final figures are on the soft side of expectations.
• Overall sentiment was revised marginally higher to 60.7 from 60.5 prior, confirming the first increase in 6 months, led by an improvement in current conditions to 64.8, up 1.1 points from the prelim. Expectations were 0.3 points lower at 58.1, however.
• As such, all three have clawed their way back to a 4-month high, though remain below levels seen in most of 2023-24. All of the above continue to see a major partisan split, with Democrats seeing higher inflation and weaker confidence than Republican counterparts.
• Most of the key household finance indicators were stronger vs prelim (including household finances vs a year / 5 years ago, household finances vs next year / 5 years ahead, expectations of higher income, etc.)
• Weaker were sentiment on "country will have continuous good times" over the next 12 months, 12-month unemployment, gas prices (seen relatively higher), and "good time" to buy a major household item/vehicle/house, or sell a house.
• Latest consumer spending data shows some "hard" evidence that activity is weakening, though not nearly to the same dramatic extent as the lurch lower in confidence surveys. Overall the UMichigan report notes "consumer views are still broadly consistent with an economic slowdown and an increase in inflation to come. Consumers continue to be concerned about the potential impact of tariffs, but at this time they do not appear to be connecting developments in the Middle East with the economy."