Consumer confidence rebounds for first time in 3 months
Is Consumer Confidence Truly Back on Track?
Consumer confidence in the U.S. rose in May, marking the first increase after three consecutive months of declines, bolstered by a strong labor market. The Conference Board's index climbed to 102 from 97.5 in April, surpassing economists' expectations of 96. This improvement was driven by positive views on current labor market conditions and reduced pessimism about future economic prospects.
Despite the rebound in confidence, high prices, especially for food and groceries, continue to concern consumers, impacting their overall economic outlook. The report also highlighted that wealthier Americans and younger consumers earning above $100,000 annually are the most optimistic about the economy. The anticipation of rising stock prices and a historically low unemployment rate contribute to this positive sentiment.
Can you detail the changes in consumer expectations regarding future business conditions, job availability, and income as mentioned by Dana Peterson?
According to Dana Peterson, chief economist at The Conference Board, consumers' expectations about future business conditions, job availability, and income have improved in May. This is indicated by the increase in the Expectations Index, which rose to 85.6 in December from a downwardly revised 77.4 in November.
In the release, Peterson noted that fewer consumers expected deterioration in future business conditions, job availability, and income. This optimism was driven by greater confidence about future business conditions, job availability, and incomes1. The share of consumers expecting interest rates to rise in the year ahead dropped to the lowest level seen since January 2021, while the share expecting stock prices to rise reached the highest level since the middle of 2021.
The improvement in consumer confidence was also reflected in the Consumer Confidence Index, which reached 110.7 in December, up from a downwardly revised 101.0 in November. The Present Situation Index also rose to 148.5 from November’s 136.5, reflecting more positive views of both business conditions and the employment situation.
Gains in optimism were seen across all ages and income levels, but they were largest among people between the ages of 35 and 54 and households with income levels of at least $125,000.
What factors contributed to the increase in consumer confidence in May after three months of decline?
Resilient Labor Market: A key factor in the rise of consumer confidence in May was the resilience of the labor market. Despite a slight uptick in the unemployment rate to 3.9% from 3.8%, the rate remained below 4% for 27 consecutive months, marking the longest stretch since the Vietnam War. Additionally, fewer Americans reported that jobs were "hard to get," with only 13.5% expressing this view, down from 15.5% in April. This improvement in perception about job availability supported a more optimistic outlook among consumers.
Expectations for Future Conditions: Consumer expectations regarding the future also improved. There was a notable decrease in the number of consumers who anticipated deterioration in business conditions, job availability, and income. This shift contributed to an increase in the Expectation Index, signaling a more positive outlook for the coming months.
Inflation and Interest Rates: While overall confidence improved, concerns about inflation and interest rates persisted. Consumers noted that high prices, especially for food and groceries, significantly impacted their economic perceptions. The Conference Board reported a slight increase in 12-month inflation expectations to 5.4% from 5.3%. Additionally, there was an uptick in the percentage of consumers expecting higher interest rates, which could temper spending and investment decisions.
Demographic Insights: The report highlighted demographic variations in confidence levels. Wealthier Americans, particularly those making over $100,000 annually, showed the most significant rise in confidence. This group likely benefits more from stock market gains, contributing to their more optimistic economic outlook. Younger consumers under 35 with higher incomes also consistently displayed higher confidence levels on a six-month rolling basis.
These factors combined to lift consumer confidence in May, reversing a three-month trend of declines and reflecting a complex interplay of improved labor market conditions, persistent inflation concerns, and demographic influences on economic perceptions.