The Michigan gauge was forecast to climb to 77.9, according to the median forecast in a Bloomberg survey. The index averaged 64.2 during the recession that ended in June 2009 and 89 in the five years prior.
Rising consumer optimism is good news for retailers including Wal-Mart Stores Inc., Kohl’s Corp. and OfficeMax Inc., which have reported that customers remain cautious.
At OfficeMax, a retailer of business supplies based in Naperville, Illinois, Chief Executive Officer Ravi Saligram said customers are being pinched by tax increases.
“We believe uncertainty related to cuts in public sector spending associated with the sequestration, the payroll tax hike and changes in health-care laws have meaningfully impacted customer behavior,” Saligram said on a May 7 earnings call.
The Michigan survey’s current conditions index, which takes stock of Americans’ view of their personal finances, rose to 97.5 in May, the highest reading since October 2007, from 89.9 last month. The index of expectations six months from now rose to 74.8 from 67.8 in April.
The increase in the leading index followed a revised 0.2% drop in March and beat the median forecast of economists, which called for a 0.2% gain.
Seven of its 10 components contributed to the increase, including a jump in building permits and the widening interest- rate spread between a federal funds rate and 10-year Treasury notes.
“The biggest risk right now is the adverse impact of cuts in federal spending,” Ken Goldstein, an economist at the Conference Board, said in a statement. “The biggest positive factor is the potential for improvement in the recovering housing and labor markets.”
Higher home prices have boosted household wealth. Residential real-estate prices rose in February by the most since May 2006, with the S&P/Case-Shiller index of house values in 20 cities up 9.3% from a year ago.
The economy is projected to grow at a 1.6% annual rate in the second quarter, down from a 2.5% annual rate in the first three months of the year, based on the median forecast in a Bloomberg economist survey from May 3 to May 8. The expansion is then projected to accelerate to a 2.6% pace in the fourth quarter.
Part of the reason for the projected second-quarter slowdown is an increase in the levy used to finance Social Security, which returned to 6.2% from 4.2%. A worker earning $50,000 a year is taking home about $83 less a month as a result.