Consumer confidence dips slightly in May

Persistent inflation and worries about the labor market cooled consumers’ optimism and spending plans in May.

U.S. consumer confidence declined slightly in May, following a small increase in April, according to The Conference Board.  The Index now stands at 106.4, down from 108.6 in April (after an upward revision).

The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—declined to 149.6 in May from 152.9 last month. The Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—declined to 77.5 from 79.0. 

“The decline in the Present Situation Index was driven solely by a perceived softening in labor market conditions,” said Lynn Franco, senior director of economic indicators at The Conference Board. “By contrast, views of current business conditions—which tend to move ahead of trends in jobs—improved.”

Overall, the present situation index remains at strong levels, suggesting growth did not contract further in the second quarter. But with the expectations index weakening further, consumers also do not foresee the economy picking up steam in the months ahead. They do expect labor market conditions to remain relatively strong, which should continue to support confidence in the short run, according to Franco.

“Meanwhile, purchasing intentions for cars, homes, major appliances, and more all cooled—likely a reflection of rising interest rates and consumers pivoting from big-ticket items to spending on services,” she said. “Vacation plans have also softened due to rising prices. “

Inflation remains top of mind for consumers, with their inflation expectations in May virtually unchanged from April’s elevated levels.

“Looking ahead, expect surging prices and additional interest rate hikes to pose continued downside risks to consumer spending this year,” Franco said.

Details from The Conference Board’s May report are below.

Present Situation
Consumers’ appraisal of current business conditions improved in May:

• 21.1% of consumers said business conditions were “good,” up from 20.8%; and
• 20.7% of consumers said business conditions were “bad,” down from 22.2%.

Consumers’ assessment of the labor market was less positive:

• 51.8% of consumers said jobs were “plentiful,” down from 54.8%; and
• 12.5% of consumers said jobs are “hard to get,” up from 10.1%.

Expectations Six Months Out
Consumers’ pessimism about the short-term business conditions outlook grew in May:

• 17.7% of consumers expect business conditions will improve, down from 18.6%; and
• 24.9% expect business conditions to worsen, up from 21.7%.

Consumers were somewhat less pessimistic about the short-term labor market outlook:

• 18.5% of consumers expect more jobs to be available, virtually unchanged from 18.4%; and
• 18.7% anticipate fewer jobs, down from 19.8%.

Consumers were mixed about their short-term financial prospects:

• 19.0% of consumers expect their incomes to increase, up from 17.8%; and
• Conversely, 14.5% expect their incomes will decrease, up from 13.2%.