US: Consumer Confidence

Tue May 29 09:00:00 CDT 2018

Consensus Consensus Range Actual Previous Revised
Consumer Confidence - Level 128.6 125.5 to 130.0 128.0 128.7 125.6

Consumer confidence came in about as expected, at a very strong 128.0 in May which is just below expectations but up noticeably from a downward revised 125.6 in April (initially 128.7).

Strength in the report is in the present situation which rose more than 4 points to 161.7. Significantly more consumers says jobs are currently plentiful, at 42.4 percent vs April's 38.2 percent, and about the same say they are hard to get, at 15.8 vs 15.5 percent.

Expectations also moved higher, up 1.3 points to 105.6 with sizably more, at 19.7 percent vs April's 18.6 percent, seeing more jobs opening up in the next six months. But buying plans are soft showing declines for cars, appliances and especially homes, at 5.5 percent for a 1.4 percentage point decline and what is the latest bad news out of the housing sector.

But there is good news for inflation expectations, up a sharp 3 tenths to 5.0 percent which, however, is still moderate for this reading. Confidence in the stock market is also picking up as the bulls rose more than 5 points to 38.3 percent and the bears sunk more than 12 points to 24.4 percent.

Of all the measures on consumer spirits, this report has been and remains the strongest. The lack of change for jobs-hard-to-get will keep up expectations for strength in Friday's employment report while the news on inflation will catch the eye of policy makers who are now more sensitive to overshooting their inflation target.

Market Consensus Before Announcement
Most confidence readings, whether for consumers or businesses, have been topping off but not the consumer confidence index which forecasters, at a May consensus of 128.6, see holding onto this year's gains. This index began to test the 130 level back in February on the strength of employment assessments and income prospects.

The Conference Board compiles a survey of consumer attitudes on the economy. The headline Consumer Confidence Index is based on consumers' perceptions of current business and employment conditions, as well as their expectations for six months hence regarding business conditions, employment, and income. Three thousand households across the country are surveyed each month. In general, while the level of consumer confidence is associated with consumer spending, the two do not move in tandem each and every month.

The pattern in consumer attitudes can be a key influence on stock and bond markets. Consumer spending drives two-thirds of the economy and if the consumer is not confident, the consumer will not be willing to pull out the big bucks. Confidence impacts consumer spending which affects economic growth. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth. This balance was achieved through much of the nineties. For this reason alone, investors in the stock and bond markets enjoyed huge gains during the bull market of the 1990s. Consumer confidence did shift down in tandem with the equity market between 2000 and 2002 and then recovered in 2003 and 2004. In 2008 and 2009, the credit crunch and past recession led confidence downward with consumer spending contracting in tandem. More recently during the economic recovery, consumer confidence has edged back up but has been outpaced by improvement in spending.

Since consumer spending accounts for such a large portion of the economy, the markets are always eager to know what consumers are up to and how they might behave in the near future. The more confident consumers are about the economy and their own personal finances, the more likely they are to spend. It's easy to see how this index of consumer attitudes gives insight to the direction of the economy. Just note that changes in consumer confidence and retail sales don't move in tandem month by month.