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THE US CONSUMER: SENTIMENT TANKS AS CREDIT BALANCES SURGE

Enough about jobs, let's talk about the people who hold them down.

The mood of the American consumer, who carries the burden of about 70% of the U.S. economy, has soured this month.

The University of Michigan's (UMich) preliminary take on May Consumer Sentiment USUMSP=ECI dropped 1.6 points to 48.2.

Next to last month's even worse preliminary reading, it's the most pessimistic print in decades and significantly gloomier than the 49.5 consensus.

Survey participants' assessment of current conditions deteriorated by 9.0% to 47.8, the lowest reading in the survey's history.

The drop defied economist predictions of a 1.0% improvement.

Near-term expectations, expected to be unchanged from April, improved by 0.8% to a still-dire 48.5.

"Consumers continue to feel buffeted by cost pressures, led by soaring prices at the pump," says Joanne Hsu, director of consumer surveys at UMich. "Middle East developments are unlikely to meaningfully boost sentiment until supply disruptions have been fully resolved and energy prices fall."

Near-term inflation expectations cooled by 20 basis points to 4.5%, or 1.9 percentage points hotter than the most recent core CPI print.

On the bright side, longer-term price growth expectations inched down to 3.4%, still well above the Fed's average annual 2% inflation target.

Late Thursday, the Federal Reserve released its outstanding consumer credit report USCRED=ECI, which showed American consumers increased their debt by $24.8 billion in March.

That marks a whiplash-inducing 181% acceleration from February and more than double the $12.25 billion consensus.

Under the hood, revolving credit, which includes credit card debt, surged by 9.1%, after February's tame 0.3% increase.

Big-ticket items such as auto loans and tuition - or non-revolving credit - grew by 4.7% after gaining 2.7% the previous month.

The data is likely skewed by February's bad weather, which was followed a month later by war-related price spikes at the gasoline pump.

Total outstanding revolving credit is at $1.34 trillion, up 3.4% from where it was a year ago.

With consumer expectations wallowing near record lows and a savings rate (the unspent share of disposable income) sitting at a paltry 3.6%, the lowest level in 3.5 years, the worry is that consumers are increasingly putting essentials on plastic.

(Stephen Culp)

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