Consumer sentiment rises, index says, with increased spending expected

Consumer sentiment rose this month to the highest level since January, suggesting that spending will strengthen this year.

The University of Michigan says its consumer sentiment index rose to 96.1 this month from 90.7 in May. The June reading was the highest since January’s 98.1. The index is up from 82.5 a year ago.

For the first six months of 2015, consumer optimism improved at the fastest pace since 2004, three years before the Great Recession, said Richard Curtin, chief economist for the Michigan survey.

Curtin says the readings are consistent with a 3 percent increase in consumer spending this year. That would be the fastest pace since 2006. The Commerce Department reported this past week that consumer spending rose at an annual pace of 2.1 percent from January through March.

“An improving economy was the most important component,” Curtin said.

Americans at all income levels registered improv- ing optimism.

The optimism reflects a strong job market. Employers have been adding jobs — nearly 3.1 million over the past year — at a pace not seen since the boom years of the late 1990s. Unemployment stood at 5.5 percent in May, down from 6.3 percent a year earlier. Wages have been slower to improve.

The increased spending last month suggests that the positive impacts from solid hiring and cheaper gasoline are starting to ripple through the economy.

Personal income also increased a healthy 0.5 percent. The savings rate for after-tax income fell slightly to 5.1 percent from 5.4 percent.

Until recently, lower gas prices and an improved job market were not enough to unlock greater consumer spending. Instead, Americans ramped up their savings. This helped put their personal finances on a more sustainable path, but it limited the ability of the overall economy — which relies mostly on consumer activity — to grow at a faster pace and potentially boost their incomes.