Preliminary numbers show that the University of Michigan’s Index of Consumer Sentiment fell to 82.7 in early June from 84.5 in May. Survey respondents viewed current economic conditions as worse than last month, dropping 5.9 percentage points. This is the largest monthly drop in present conditions since August 2011. Among the top third of the income distribution, the sentiment index rose to 96.1 in June from 94.1 in May, the highest level recorded during this recovery. The majority of the index pullback was among lower income households. Consumers were still slightly more optimistic about future economic outlook, which rose 0.9 percentage points. When asked about prospects for the national economy during the year ahead, consumers are more optimistic than any other time since mid-2007. Unemployment expectations were mixed with fewer consumers expecting either increases or declines during the year ahead for unemployment. Finally, buying attitudes toward household durables declined among lower income households, while vehicle buying attitudes declined among upper income households. Even with these attitude declines, the survey points to the current attitudes being more favorable than any time in the past year.

As for inflation expectations in early May, consumers expect a year-ahead inflation rate of 3.2 percent and a longer-term (five- to ten-year) rate of 3.0 percent.

Import prices decreased −0.6 percent in May, marking three months of consecutive declines. Both petroleum and nonpetroleum prices fell, with the former dropping −2.0 percent and the latter decreasing −0.3 percent. Petroleum prices have now declined for the past two months and nonpetroleum prices have fallen for the past three. On a year-over-year basis, import prices fell −1.9 percent, marking a full year of flat or falling yearly prices. Petroleum prices were down −6.2 percent compared to last year and nonpetroleum prices fell −0.5 percent. May’s report continued to display the same weakness seen in March and April. Import prices will likely remain weak due to the global economic slowdown.

Export prices fell −0.5 percent in May marking three months of consecutive declines as well. On a year-over-year basis, export prices fell −0.9 percent after falling at the same pace in April.

Total nonfarm payroll employment rose by 175,000 and the unemployment rate ticked up to 7.6 percent in May, with the payroll numbers coming in slightly above the forecast of 168,000. On the household side of the report, the labor force participation rate increased slightly by 0.1 percentage points to 63.4 percent, but is still 0.2 percentage points below its January reading. The employment-to-population ratio was unchanged from April at 58.6 percent and has shown little movement over the past year. Overall this was a moderately positive report, with the unemployment rate increasing partially due to an increase in the labor participation rate as workers re-enter the labor force. Total number of employed increased by 319,000, indicating improved traction within the labor market.

As for the establishment side of the report, revisions to both March and April have subtracted a total of 12,000 more jobs than previously estimated as March was revised up 4,000 and April revised down 16,000 to 142,000 and 149,000, respectively. Over the past 12 months, employment growth has averaged a total of 172,000 jobs per month. Professional and business services continue to show solid improvement, adding 57,000 jobs, as well as food services and drinking places up 38,000 jobs, retail trade up 28,000 jobs, and healthcare up 11,000 jobs. Government continues to lead employment declines, falling 14,000 for the month and down 45,000 over the past three months. The total private diffusion index increased 4.2 percentage points to 59.8 and remains above the growth threshold of 50. The average workweek for all employees increased by 0.1 hours to 34.5 hours, while the average hourly earnings for all employees rose by one cent to $23.89.

Nonfarm business sector productivity—real output per hour of all persons—increased at an annualized rate of 0.5 percent in the first quarter of 2013. This is a slight downward revision from the 0.7 percent increase in the preliminary estimate. The first quarter gain follows a 3.1 percent increase and a 1.7 percent decline in the third and fourth quarters of 2012, respectively, and over the past year, productivity has increased 0.9 percent. The increase in productivity during the first quarter was caused by a 2.1 percent increase in output compared with just a 1.6 percent increase in hours. Since the first quarter of 2012, output is up 2.4 percent while hours have increased 1.5 percent. There was a sharp downward revision to hourly compensation, which declined 3.8 percent (revised down from a 1.2 percent increase).

The same sharp downward revision can be seen after controlling for price changes, as real hourly compensation fell 5.2 percent (revised down from a 0.3 percent increase). However, the decline in real hourly compensation in the first quarter follows a sharp 7.5 percent increase in the fourth quarter of last year, and over the past four quarters, compensation has increased 0.3 percent. Unit labor costs, which are measured as hourly compensation per hourly output, fell 4.3 percent in the first quarter, largely due to the downward revision to compensation. This follows a 1.9 percent decrease and an 11.8 percent increase in the third and fourth quarters of 2012, respectively, and unit labor costs have increased 1.1 percent over the past year.