Economy Watch: Consumers Feeling Unexpectedly Better

The Reuters/University of Michigan consumer sentiment index spiked unexpectedly on Friday to a mid-May reading of 77.8, up from 76.4 a month ago, which is the highest level since early 2008.

The Reuters/University of Michigan consumer sentiment index spiked unexpectedly on Friday to a mid-May reading of 77.8, up from 76.4 a month ago, which is the highest level since early 2008. Consumers evidently hadn’t gotten the memo that the early 2012 gains in the U.S. economy, like those in 2010 and ’11, seemed to crumble away with the onset of spring (though the jury is still out on that).

But according to the survey, which asks 500 U.S. households each month about their financial conditions and attitudes about the economy, consumers were feeling more chipper about the current state of the economy than future prospects. The respondents’ assessment of current conditions was up 4.4 points to 87.3, the highest level since the technical end of the recession (in mid-2009).

Expectations, on the other hand, aren’t nearly as elevated, down 0.6 points to 71.7. That’s the third time in a row that expectations have dropped, perhaps indicating a foreboding that recent growth will, in fact, turn anemic as the year wears on. That kind of sentiment might in turn affect consumer spending in an unpleasantly negative way for retailers and the wider economy, considering how much of it depends on people buying things.

Spending for Mother’s Day to increase

Retailers don’t need to be worried about Mother’s Day, however, according to a survey released by the National Retail Federation recently that predicted that Americans will have spent $18.6 billion on Mother’s Day gifts and meals when all the numbers are added up this week, up 8 percent from last year. The NRF estimated that average household spending on the occasion would end up being $152.52, up from $140.73 last year. During 2009 and ’10, spending had dropped well below $130 per household for the occasion.

Florists, unsurprisingly, will benefit greatly from their association with Mother’s Day, according to the NRF—to the tune of $2.2 billion for the occasion, which is one of the main selling days for the industry (about two-thirds of people buying something for mom will include flowers). About half will take their mothers out to brunch or lunch or dinner, spending $3.4 billion. Perhaps more surprisingly, the organization also says that 12.7 percent of gift-buyers for mom will buy something electronic—tablets, smart phones, digital cameras and the like, spending $1.6 billion on that kind of gift.

“While still very mindful of their finances, consumers will open their wallets a little more this year,” noted BIGinsight Executive Vice President Phil Rist in a press statement (BIGinsight conducts the survey for NRF). “Many will use the opportunity to comparison shop and research products to save a few bucks, utilizing their mobile and tablet devices at home and in stores as they look for gifts and other ways to celebrate.”

Return of the drachma?

Greece was not able to form a government last week, so the prospect of a new round of parliamentary elections on June 17 became a strong possibility. Also possible, and now openly talked about by euro-zone finance ministers and other panjandrums, is the prospect of the country leaving the zone all together. The devil will be in the details of that unprecedented event, since no clear-cut mechanism for a withdrawal from the euro seems to exist, but at least the subject isn’t taboo among euro officialdom any more.

The exit seems so likely, in fact, that two major London bookies—William Hill Plc and Ladbrokes Plc, who are well known for taking bets on most anything—have stopped taking bets on the matter. Bettors had become increasingly interested in the matter in recent weeks, too much so apparently, with a surge of betting forcing the two bookmakers to take no further bets on whether Greece will drop out of the euro.

Wall Street was up most of Friday morning on the strength of consumer sentiment, but took a long slide during the afternoon to end mostly down. The Dow Jones Industrial Average lost 34.44 points, or 0.27 percent, while the S&P 500 declined 0.34 percent. The Nasdaq eked out a barely noticeable 0.01 percent gain.