Today’s University of Michigan Consumer Sentiment index beat expectations, coming in at 94.3 versus 94.7 in May and 94.0 expected this morning. As shown, consumers are broadly optimistic and the confidence index has been in a range similar to that of the last expansion’s peak for about two years now.

The current conditions index was especially strong, shooting to a new expansion high for the month.  That’s despite worries over job creation and rising (though still low) gas prices, and largely confirms low jobless claims and moderately accelerating wage data. The current conditions index is now higher than 90% of prior readings dating back to 1978, which stands in stark contrast to the dim view of the global and US economies that professionals and the media often focus on – including us!

The major piece of bad news in the report: inflation. Expectations for inflation over the five years starting five years from today fell to the lowest on record, 2.3%.  While that’s still above the FOMC’s target of 2% long-run inflation, it’s a continuation of a slide that’s been in place since 2014. While it may be easy to interpret the chart below as consumers expecting deflation, as Matthew Boesler of Bloomberg notes, the decline is mostly due to fewer consumers expecting very high inflation. That, combined with the still-over-2% level, is one small piece of solace for monetary hawks; the lower inflation expectations get, the more inclined the FOMC will be towards accommodative policy, all else equal.

After a brief scare in early May where first-time claims spiked up to 294K, jobless claims have resumed their downward trend going five straight weeks without a weekly increase.  In this week’s report, economists were expecting first-time claims to come in at a level of 270K, but the actual reading came in at 264K.  That reading is still 16K above the multi-decade low of 248K from mid-April, but it’s down 30K from the recent high on 5/6.

With the 294K reading from five weeks ago dropping off the count, the four-week moving average dropped by 7.5K this week to 269.5K.  That represents a four-week low but is still 13.5K above the multi-decade low of 256K from seven weeks ago.

On a non-seasonally adjusted basis (NSA), jobless claims dropped to 232.5K from 247.1K.  That’s more than 100K below the average for the current week of the year dating back to 2000 and the lowest level of NSA claims for the current week of the year since 1974!

Investor sentiment for the latest week showed an equal amount of bulls and bears for the first time in close to two years (7/31/14), and for both camps the level of conviction is pretty low.  According to the American Association of Individual Investors (AAII), bullish sentiment came in at 27.83%, down from 30.17% last week.  This marks the 32nd straight week where bullish sentiment has been below 40%.  Bearish sentiment saw a similar decline this week, falling from 29.05% last week to 27.83%.  With both bulls and bears declining, neutrals increased back up to 44.34%, which has tended to be the trend with sentiment every time the S&P 500 gets back above 2,100.