Consumer confidence stabilizes in May but uncertainty clouds picture

Following two months of rapid decline, the free-fall in consumer confidence stopped in May.

The Conference Board’s Consumer Confidence Index inched up to 86.6 in May following a sharp decline, to 85.7 in April. While the metric held steady, it was significantly lower than the pre-pandemic reading of 130.7 in February. (The cutoff date for the preliminary May results was May 14.)

The May report showed that consumers are feeling a bit more optimistic about the future than the present. The Present Situation Index – based on consumers’ assessment of current business and labor market conditions – declined from 73.0 in April to 71.1 In May. But Expectations Index – based on consumers’ short-term outlook for income, business and labor market conditions – improved from 94.3 in April to 96.9 in May.

“The severe and widespread impact of COVID-19 has been mostly reflected in the Present Situation Index, which has plummeted nearly 100 points since the onset of the pandemic,” said Lynn Franco, senior director of economic indicators, The Conference Board. “Short-term expectations moderately increased as the gradual re-opening of the economy helped improve consumers’ spirits.”

At the same time, Franco noted, consumers remain concerned about their financial prospects. In addition, inflation expectations continue to climb, which could lead to a sense of diminished purchasing power and curtail spending. 

“While the decline in confidence appears to have stopped for the moment, the uneven path to recovery and potential second wave are likely to keep a cloud of uncertainty hanging over consumers’ heads,” Franco said.

Consumers’ outlook for the labor market was mixed. The proportion expecting more jobs in the months ahead declined from 41.2% to 39.3%. However, those anticipating fewer jobs in the months ahead also decreased, from 21.2% to 20.2%. Regarding their short-term income prospects, the percentage of consumers expecting an increase declined from 17.2% to 14.0%. But the proportion expecting a decrease declined from 18.4% to 15.0%.