NEW YORK — Consumer confidence hit a six-month high this month as reservations about current circumstances were muted by budding optimism about the future.
With the end of military action in Iraq receding into memory, consumers were more mindful of the nation’s economy in May. While a bit solemn about the present, they viewed the future positively, allowing the Conference Board’s survey of 5,000 households to notch up 2.8 points to 83.8 in May. The gain follows a 19.6 point surge in April which provided a pleasant postwar surprise for economists and analysts.
However, the increase in May was driven entirely by the advance in consumers’ expectations, which offset the more dour assessment of current conditions. The Expectations Index advanced 9.6 points to 94.4 this month from 84.8 points last month, while the Present Situation Index retreated 7.3 points to 67.9 from 75.2, suggesting consumers won’t be abandoning their relatively thrifty spending habits anytime soon.
“The postwar euphoria experienced last month has quickly given way and consumers’ focus has returned to matters on the home front,” said Lynn Franco, director of The Conference Board’s Consumer Research Center. “Labor market conditions continue to be of concern, but consumers anticipate a turnaround in the coming months.”
John Lonski, an economist with Moody’s Investors Service, said while he is encouraged that consumers haven’t lost hope that hiring activity and income growth could soon be ready to advance, he cautioned they are not pleased with the current labor market conditions.
“Consumers believe that the same easy monetary policy that allowed mortgage yields to drop to their lowest levels since the Sixties, along with low interest rates and the forthcoming tax cuts, should be enough to rejuvenate the U.S. economy,” Lonski said. “The increase from the previous month is nice, but it’s still significantly below where it was one year ago.”
Lonski noted that, while the index rose by 3.5 percent in May from the previous month, it is still 24 percent below the 110.3 point reading of May 2002.
He warned that although spending might increase in the second half of this year, the rate of growth will still be under its average rate of growth in the late Nineties to early 2000.
Putting the situation in athletic terms, he added, “It is more the case that consumers are trying to grind out a first down, while setting aside hopes for a dramatic touchdown anytime soon.”
Consumers’ attitudes toward current conditions were less favorable than last month. Those rating present business conditions as “bad” rose to 28.4 percent from 23.9 percent. Those rating conditions as “good” remained virtually unchanged at 16.1 percent. Labor market conditions also deteriorated. Consumers reporting jobs are hard to find jumped to 32.6 percent from 29.4 percent. Those claiming jobs are plentiful slipped to 12.6 percent from 13 percent.
Consumers’ short-term expectations posted another significant improvement. Those anticipating an improvement in the business conditions over the next six months rose to 22.8 percent from 18.9 percent. Consumers anticipating conditions to worsen fell to 9.7 percent from 12.3 percent.
The employment outlook was also more favorable. Consumers anticipating more jobs to become available increased to 17.8 percent from 16.4 percent, while those expecting fewer jobs fell to 17.6 percent from 20.9 percent. The proportion of consumers anticipating an increase in their incomes slipped to 17 percent from 17.2 percent.