The University of Michigan's reading of consumer sentiment in May fell 2.7% from April to 85.3. The decline contrasted to Consensus expectations for stability at 88.0.

Sentiment has fallen in each of the last five months and is down 17.8% from the January '04 peak. During the last ten years there has been a 75% (inverse) correlation between the level of consumer sentiment and the y/y change in real PCE, although the correlation has fallen in recent years.

Consumer expectations were depressed mostly by a sense that unemployment would rise which generated expectations that real family income would decline, helped lower by an expected acceleration in price inflation.

The reading of current economic conditions fell 1.1% for the fourth consecutive monthly drop and reflected a sharp decline in the reading of personal finances to the lowest level since December 2003.

The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.