Consumer Confidence Stabilizes After Spring Freefall
Consumers took a deep breath in May, and it showed. The Conference Board, New York, reported its Consumer Confidence Index held steady in May, following sharp declines in March April that saw it drop to its lowest level in six years.
The Index now stands at 86.6, up from 85.7 in April. The Present Situation Index – based on consumers’ assessment of current business and labor market conditions – declined from 73.0 to 71.1. However, the Expectations Index – based on consumers’ short-term outlook for income, business and labor market conditions – improved from 94.3 in April to 96.9 this month.
“Following two months of rapid decline, the freefall in confidence stopped in May,” said Lynn Franco, Senior Director of Economic Indicators with The Conference Board. “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. Short-term expectations moderately increased as the gradual re-opening of the economy helped improve consumers’ spirits.”
Franco cautioned, however, that 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,” she said. “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.”
Tim Quinlan, Senior Economist with Wells Fargo Securities, Charlotte, N.C., said while consumers’ take on the present situation worsened, expectations for the future are brightening slightly.
“Overall, the level of consumer confidence is down roughly a third from readings of 120 or better that prevailed for much of the past couple of years, but for now at least, it appears to have stopped falling,” Quinlan said. “While consumers have not lost faith in the future, the impact of layoffs and the challenges of the pandemic that remain are clearly weighing on consumers’ assessment of the present situation.”
The report said consumers’ assessment of current conditions declined further in May. The percentage of consumers claiming business conditions are “good” decreased from 19.9 percent to 16.3 percent, while those claiming business conditions are “bad” increased from 45.3 percent to 52.1 percent. Consumers’ appraisal of the job market was mixed. The percentage of consumers saying jobs are “plentiful” decreased from 18.8 percent to 17.4 percent, however those claiming jobs are “hard to get” decreased from 34.5 percent to 27.8 percent.
Consumers, however, were moderately more optimistic about the short-term outlook. Those expecting business conditions will improve over the next six months increased from 39.8 percent to 43.3 percent, while those expecting business conditions will worsen decreased, from 25.1 percent to 21.4 percent.
The report said consumers’ outlook for the labor market was mixed. The proportion expecting more jobs in the months ahead declined from 41.2 percent to 39.3 percent, however those anticipating fewer jobs in the months ahead also decreased, from 21.2 percent to 20.2 percent. Regarding their short-term income prospects, the percentage of consumers expecting an increase declined from 17.2 percent to 14.0 percent, however the proportion expecting a decrease declined from 18.4 percent to 15.0 percent.
