Late May Surge Drives Consumer Confidence

The nation’s two most widely reported consumer confidence measures came up with May results that were polar opposites, throwing markets into disarray and raising questions about the housing recovery. But timing may explain the confusion.

Released Friday, the Thomson Reuters/University of Michigan Index of Consumer Sentiment rose to its highest level since October 2007 due to more favorable job and wage prospects, which are key drivers for the housing market. The index climbed to 79.3 in its final May reading last week, up from a midmonth tally of 77.8 and April’s score of 76. After four years of decline and uncertainty, suggesting that consumer confidence is ready to lead the housing economy out of its doldrums and into recovery mode.

This morning, however, the Conference Board Consumer Confidence Index®, which had declined slightly in April, fell nearly four points in May. The Index now stands at 64.9 (1985=100), down from 68.7 in April. However, the Conference Board’s cut-off date was May 16.

“Consumer Confidence fell in May, following a slight decline in April. Consumers were less positive about current business and labor market conditions, and they were more pessimistic about the short-term outlook. However, consumers were more upbeat about their income prospects, which should help sustain spending. Taken together, the retreat in the Present Situation Index and softening in consumer expectations suggest that the pace of economic growth in the months ahead may moderate,” said Lynn Franco, Director of Economic Indicators at The Conference Board.

Consumers’ appraisal of present-day conditions deteriorated in May. Those claiming business conditions are “bad” increased to 34.3 percent from 33.2 percent, while those saying business conditions are “good” decreased to 13.6 percent from 15.5 percent. Consumers’ appraisal of the job market was also less favorable. Those claiming jobs are “hard to get” increased to 41.0 percent from 38.1 percent, while those stating jobs are “plentiful” decreased to 7.9 percent from 8.4 percent.

Consumers have also grown less upbeat about the short-term outlook. Those expecting business conditions to improve over the next six months decreased to 16.6 percent from 18.5 percent. However, those anticipating business conditions will worsen decreased to 13.1 percent from 14.2 percent.

Consumers’ outlook for the labor market was also less positive. Those expecting more jobs in the months ahead decreased to 15.8 percent from 16.9 percent, while those anticipating fewer jobs increased to 21.0 percent from 18.4 percent. The proportion of consumers expecting an increase in their incomes improved to 15.2 percent from 13.9 percent, according to the Conference Board Report.

On the other hand, University of Michigan study found that the fewest number of consumers reported hearing more about job gains than job losses in the index’s survey than at any time in the past four years, which improved consumer plans for buying household durables.

A third study, a daily poll of consumer sentiment by Rasmussen Reports, may explain the discrepancies. The daily Rasmussen survey of consumer sentiment registered a rise in consumer optimism in May over April, which averaged 88.6. The survey hit the mid-90s on May 18-20 and on May 23 through yesterday, which posted a level of 92.1.

The early cutoff date for the preliminary results of the Conference Board report may have caused it to miss the late month surge in optimism picked up by both the Thomson Reuters/University of Michigan report and Rasmussen.

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