Consumer confidence in May was again lower than the preceding month’s reading; although March’s index was the highest reading since 2000. The index fell to 117.9, against an expected reading of 119.5. The weakness was driven by changes to the expectations component. Expectations fell to 102.6, while the assessment of the present situation was essentially unchanged at 140.7. The expectations component remains well above the 80 level, which is the lower band of its range in a normal recovery.
The ‘flat’ reading in the present situation was due to a slightly lower rate of sentiment toward business and employment conditions as being good, whereas more thought it was normal or fewer thought jobs were hard to get. With regard to consumers’ expectations, sentiment toward viewing business conditions as “better” was lower at 21.3% from 25.1%, and expectations for “more jobs” were also lower at 18.6% from 21.9%. Those anticipating higher incomes were higher at 19.2%, while those who expected a decrease in income was (unfortunately) also higher at 8.7%. The percentage of respondents planning to buy a home was lower at 5.8%. Plans to purchase a new home were a little higher at 1.3% from 1.0%.
In terms of which is winning, the hard data or the soft, the reality is that we are seeing convergence, with the hard data continuing to improve at a moderate pace, and the soft data (personified by the consumer confidence data) rolling off of its post-election euphoria to come back to meet the harder data. The strong recovery in consumers’ income expectations has been particularly encouraging. The suggests that the sustained improvement in employment is finally leading toward a more tangible improvement in compensation and consumers’ incomes. A decline in confidence has been expected from such high levels, and, as such, this report will be still be seen as quite a positive development by the Fed, who are still very much on course for another rate increase in June.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.