Consumer sentiment as measured by the University of Michigan/Thomson Reuters index jumped from a weak 76.4 reading in April to a more robust 83.7 in May. Economists had expected a reading of 78 following the surprise drop in April from a 78.6 in March.

The leading indicators index from the Conference Board also posted a higher-than-expected rise this morning, from a decline of 0.1 in March to a 0.6 point boost to 95 in April. The consensus estimate called for a 0.3 April rise.

New housing permits and the interest rate spread get most of the credit for the rise in the leading indicators, even though the outlook from consumers remains weak. An economist at the Conference Board said:

The index is 3.5 percent higher (annualized) than six months ago, suggesting expansion. However, the biggest risk right now is the adverse impact of cuts in federal spending. The biggest positive factor is the potential for improvement in the recovering housing and labor markets. The biggest unknown is the resiliency in confidence, both consumer and business.

The current conditions subindex also came in higher, up 0.1 point in April to a reading of 105.6.

The consumer sentiment index posted its highest reading since October 2007 and the subindex reading on current conditions rose sharply from 89.9 in April to 97.5 in the first part of May. The future conditions index rose seven points as well, but from a much lower base.

The threatened impact of the federal budget cuts (sequester) have so far been mostly absent. In some measure that is probably related to lower gasoline prices. The less consumers have to spend on fuel, the more cash they have in their pockets to spend on something else (or to save).

Gasoline prices have risen for the past week or so and are now higher than they were a month ago. These reports likely will lead to a rise in crude prices because the conventional wisdom says that an improving economy will use more oil. These are not conventional times, however, and any rise in crude prices is more likely than not to be short lived.

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