US consumer sentiment jumped to its highest level in 15 years in May, but the gains could prove fleeting as Americans digest the latest escalation in the trade war between Washington and Beijing.
The University of Michigan’s consumer sentiment index came in at 102.4 in May, up from the 97.2 recorded in April and confounding expectations for the reading to remain unchanged.
However, the report noted that the gains were “recorded mostly” before the latest flare-up in US-China trade tensions. Beijing this week hit back against the Trump administration’s move to raise duties on $200bn worth of Chinese goods with retaliatory duties of its own on US imports.
“Even apart from the direct impact of tariffs on prices, rising tariffs could cause a more general loss of confidence which could further diminish the pace of consumer spending,” said Richard Curtin, the survey’s chief economist.
The report comes on the heels of a batch of disappointing data on the US economy. Both retail sales and industrial production unexpectedly fell in April, raising questions over whether the strength seen in the first three months of the year will carry through to the second quarter.
“At present, the data point toward moderate spending growth in the year ahead. Nonetheless, the data indicate the corrosive impact of an escalating trade war,” Mr Curtin said.
Still, the markets cheered the headline rise in consumer sentiment. Stocks swung back into positive territory, with the S&P 500 up 0.2 per cent. The rally in Treasury lost some of its steam, pushing yields higher. The yield on the benchmark 10-year note was nearly unchanged at 2.3962 per cent, compared to the session low of 2.364 per cent. The DXY dollar index was 0.1 per cent higher after having traded in the red earlier.