Consumers' Expectations for Income Gains at Highest Level in a Dozen Years

Consumers had the most favorable real income expectations in a dozen years, according to an early gauge of May consumer sentiment.

The University of Michigan said Friday that its preliminary reading of consumer sentiment was 97.7 in May, from April's final reading of 97. It is up 3.2% from May 2016.

Economists surveyed by The Wall Street Journal had expected a May preliminary reading of 97.1.

The index reflecting consumers' sentiment on current economic conditions rose 2.5% to 112.7 from last May as the index of expectations rose 3.8% from a year ago to 88.1.

More favorable income gains and low inflation led to the rise in consumers' expectations on real income. The recent rise in optimism, which saw a boost after President Donald Trump's election in November, reflects a turnaround from consumers' attitudes in October, when sentiment had matched a two-year low.

Still, buying plans were mixed, as conditions for household durable-goods purchases rose to a decade peak but vehicle-buying conditions slipped to a three-year low.

The Federal Reserve in March voted to raise short-term interest rates and it is expected to push for additional rate increases if economic conditions continue to improve.

As in recent months, the survey also showed continued widespread disagreement about future U.S. economic prospects along political party lines. However Democrats in the latest survey expressed diminished fears of an immediate recession and had less concerns about their own personal financial setbacks.

Inflation expectations, a measure closely watched by the Fed, remained largely steady. In the early May survey, consumers said they expect inflation of 2.6% in the coming 12 months, up from 2.5% in the month before. They expect 2.3% inflation in the coming five years, down from 2.4% in April.

Write to Austen Hufford at austen.hufford@wsj.com

(END) Dow Jones Newswires

May 12, 2017 11:14 ET (15:14 GMT)