Consumer Confidence Improves for First Time in Four Months

The Conference Board's Consumer Confidence Index® improved for the first time in four months in May. The index rose to 102.0 this month from April's upwardly revised 97.5. This month's reading was better than expected, exceeding the 96.0 forecast.

The Present Situation Index, which is based on consumers' assessment of current business and labor market conditions, increased to 143.1 in May from 140.6 in April. Meanwhile, the Expectations Index, which is based on consumers' short-term outlook for income, business, and labor market conditions, rose to 74.6 in May from 68.8 in April. Note that a level of 80 or below for the Expectations Index historically signals a recession within the next year.

“Confidence improved in May after three consecutive months of decline,” said Dana M. Peterson, Chief Economist at The Conference Board. “Consumers’ assessment of current business conditions was slightly less positive than last month. However, the strong labor market continued to bolster consumers’ overall assessment of the present situation. Views of current labor market conditions improved in May, as fewer respondents said jobs were ‘hard to get,’ which outweighed a slight decline in the number who said jobs were ‘plentiful.’ Looking ahead, fewer consumers expected deterioration in future business conditions, job availability, and income, resulting in an increase in the Expectation Index. Nonetheless, the overall confidence gauge remained within the relatively narrow range it has been hovering in for more than two years.

“Compared to last month, confidence improved among consumers of all age groups. In terms of income, those making over $100K expressed the largest rise in confidence. On a six-month moving average basis, confidence continued to be highest among the youngest (under 35) and wealthiest (making over $100K) consumers.”

Peterson added: “According to May’s write-in responses, consumers cited prices, especially for food and groceries, as having the greatest impact on their view of the U.S. economy. Notably, average 12-month inflation expectations ticked up from 5.3 percent to 5.4 percent. Perhaps as a consequence, the share of consumers expecting higher interest rates over the year ahead also rose, from 55.2 percent to 56.2 percent. Meanwhile, consumers’ assessment of their Family’s Financial Situation both currently and over the next six months (measures not included in calculating theConsumer Confidence Index) deteriorated slightly.

“The survey also revealed a possible resurgence in recession concerns. The Perceived Likelihood of a US Recession over the Next 12 Months rose again in May, with more consumers believing recession is ‘somewhat likely’ or ‘very likely’. This contrasts with CEO assessments of recession risk: according to our CEO Confidence survey, only 35 percent of CEOs surveyed in April anticipated a recession within the next 12 to 18 months. Consumers were nonetheless upbeat about the stock market, with 48.2 percent expecting stock prices to increase over the year ahead, compared to 25.4 percent expecting a decrease and 26.4 expecting no change.”

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Background on the Consumer Confidence Index

The Conference Board Consumer Confidence Index measures the consumers attitudes and confidence in the economy, business conditions, and labor market, with higher readings indicating higher optimism. The general assumption is that when consumers are more optimistic they will spend more and stimulate economic growth. However, if consumers are pessimistic then spending will decline and the economy may slow down. The index is based on a 5 question survey, with 2 questions related to present conditions and 3 questions related to future expectations. The survey began in 1967 and was conducted every two months but changed to monthly reporting in 1977, which is where our data begins.