Consumer confidence improved in each of the past nine monthly surveys, rising to its highest level since October 2007. More favorable job and wage prospects were the main factors behind the improved outlook. Record numbers of consumers mentioned that they heard of favorable employment trends despite the jobs slowdown recently reported by the Labor Department. The continued revival of consumer confidence critically depends on renewed job growth. One issue that only a few consumers even mentioned was the potential impact on the domestic economy from the European financial crisis.

Many more consumers reported hearing about recent job gains than job losses. Indeed, the fewest consumers reported hearing of job losses in May than anytime since mid 2007. In each of the past three months, a majority of consumers reported an improved economy, and twice as many expected further improvement rather than renewed declines in the year ahead. Most consumers, however, expected the gains to be modest. Confidence in the government’s economic policies remained relatively low, with 41% holding negative views.

Favorable views on buying conditions for household durables were cited by 63% in May, the highest level in more than a year, driven up by the availability of price discounts. Vehicle buying conditions were judged more favorably in May by households with incomes over $75,000, those most likely to purchase new vehicles. Favorable views of vehicle buying conditions were held by 72%, up from 67% one month ago and 57% one year ago.

The Sentiment Index was 79.3 in the May 2012 survey, up from 76.4 in April and 74.3 in last May’s survey. Although the largest gain from last month was in consumers’ assessments of current economic conditions, compared with a year ago, both the current and expected components of the Sentiment Index posted nearly equal increases. The May Expectations Index reached its highest level since July 2007, and the Current Conditions Index reached its highest level since January 2008.

Consumer confidence was nearly as high in the past two years before the gains were reversed. While gas prices and economic policy debates played a role in the pull backs, changes in job expectations also had a critical impact. The upbeat consumer reports on jobs could mean that more positive numbers will soon be reported by the government, or that consumers have yet again pushed their expecta-tions beyond the likely performance of the econ-omy. The most likely prospect is that job growth resumes at a modest pace and that confidence re-mains largely unchanged until after the November election and decisions about tax policy are made.