Consumer Confidence in the US Rises Despite Concerns over Rates and Inflation
Consumer confidence in the US experienced a surprising increase in May, breaking a streak of three consecutive months of decline. The Conference Board, a reputable business research organization, reported that the consumer confidence index rose from 97.5 in April to 102 in May, surpassing analysts’ predictions of further decline.
The consumer confidence index serves as a measure of Americans’ perception of the current state of the economy and their outlook for the next six months. This month’s index for short-term expectations regarding income, business, and the labor market saw a significant improvement, reaching 74.6 compared to a dismal 68.8 in April. However, it is important to note that a number less than 80 could indicate potential recessionary times ahead.
While consumer confidence in the US economy appears to be on the rise, concerns about a recession in the upcoming year have not completely disappeared. In May, more than two-thirds of research participants expressed their belief that a recession was “somewhat” or “very” likely to occur within the next twelve months. This sentiment contrasts with the findings of a Consumer Confidence Board of Chief Executive Officers study, where only about one-third of participants predicted a recession in the next 12 to 18 months.
The Conference Board’s report also highlighted changes in consumer behavior. The percentage of respondents planning to buy a car increased slightly for the second consecutive month, while the percentage planning to buy a large appliance increased for the first time in several months. On the other hand, the desire to purchase real estate reached its lowest point since August 2012. High mortgage rates and rising prices have deterred prospective buyers, resulting in a decline in sales of existing properties in April.
Despite these mixed indicators, assessments of the current economic situation improved from 140.6 in April to 143.1 in May. However, there are some signs that the US economy may be slowing down. The nation’s economy experienced a sharp contraction in the first quarter of 2023, with an annual pace of 1.6% compared to the rapid growth rate of 3.4% in the previous three months. This decline was primarily driven by high interest rates in the bond market.
Furthermore, retail sales remained stagnant in April, showing no change compared to the 0.6% growth observed in March. This lack of growth can be attributed to persistently high prices and consumers’ increased reluctance to use credit cards for purchases due to high interest rates.
To counter consumers’ growing reluctance to spend money amidst inflation, many large retailers have started offering discounts this summer. The latest quarterly earnings of major retailers indicate that while consumers are still spending, they have become more cautious about prices and are becoming more selective in their purchases.
On a positive note, despite a decrease in hiring the previous month, consumers’ confidence in the labor market grew in May. However, employment growth is not as rapid as it was during the initial bounce back from the pandemic. In April, businesses added 175,000 new jobs, a significant drop from the 315,000 new jobs added in March. Although the unemployment rate remained below 4% for the 27th consecutive month, it did increase to 3.9% during that period, marking the longest duration since the 1960s.
In conclusion, while consumer confidence in the US has seen a slight improvement, concerns about a potential recession and signs of economic slowdown persist. Factors such as high interest rates, inflation, and changing consumer behavior contribute to this complex economic landscape. Retailers are adapting by offering discounts to entice cautious consumers, while businesses continue to add jobs albeit at a slower pace. The future trajectory of the US economy remains uncertain, and it will be crucial to monitor these indicators closely in the coming months.
