WALL STREET WOES, GAS HIKES FAIL TO DENT CONSUMER CONFIDENCE

Byline: Jennifer Weitzman

NEW YORK — Interest rate hikes and stock price declines couldn’t keep consumer confidence from springing forward in May, nearly reaching January’s historical high.
This month’s Consumer Confidence Index, released on Tuesday by the Conference Board, jumped ahead to 144.4 from 137.7 in April. Consumer confidence had dipped over the previous three months from January’s all-time high of 144.7.
Economists say the series of increases in interest rates, the recent gyrations in the stock markets and grueling prices at the gas pump have yet to slow consumer spending, and in fact, the vigorous recovery compared to the past few months shows that Americans are optimistic about their economic future.
“Consumers aren’t sounding the alarms,” said Lynn Franco, director of the Conference Board’s consumer research center. “With unemployment at a 30-year low and the short-term Conference Board forecast projecting favorable labor market conditions, confidence is expected to remain strong through the summer. Volatile financial markets and interest rate hikes are not expected to have a significant impact on consumers’ spirits.”
The confidence gain was a result of an increase in both components of the Index, including its Present Situation Index, which rose to 183.1 from 179.8 for April, and the Expectation Index, which hit 118.7, up from 109.7. The 183.1 mark ties the high point for the year.
According to the survey, consumers’ assessment of current business conditions was upbeat in May. The percentage of consumers calling business conditions “good” edged up to 44.7 percent from 44.5 percent. Those rating conditions as “bad” declined to 7 percent from 8.4 percent. Consumers claiming jobs were “hard to get” dropped to 11.4 percent from 12.1 percent.
In addition, the survey said that consumers’ expectations have soared upward to 118.7, from 109.7 last month. Particularly, the survey noted the number of consumers expecting improved business conditions jumped to 18.8 percent from 15.5 percent in April. The proportion expecting conditions to worsen declined to 4.8 percent from 5.3 percent. The job outlook was also more favorable. The percentage of consumers expecting more jobs to become available in the coming months rose to 19.7 percent from 16.5 percent. Income prospects are also more optimistic today than in April, with 26.7 percent reporting that they anticipate an increase in their income, up from 24.6 percent.
John Puchalla, an economist with Moody’s Investors Services, said that we are seeing in May the reflection of higher expectations of job growth, adding that it’s “jobs and income, and not stock prices, that determine consumer confidence.”
He went on to say that although higher interest rates and lower stock prices were proving to be a drag on consumer confidence, those effects are being overwhelmed by the growth in both the job market and expected income.
The survey also noted an across the board increase in consumers’ optimism in their plans to purchase high-ticket items for the next six months. For instance, the percentage of consumers planning to buy a car improved to 9.6 percent from 8.3 percent; the percentage of consumers’ expecting to purchase a home increased to 3.6 percent from 3.2 percent; and the percentage expecting to purchase a major appliance shot up to 32 percent from 29.7 percent.
Franco said she anticipates some month-to-month fluctuations, but added that she expects confidence to remain at these historically strong heights for the next few months because consumers are expecting another rise in interest rates in the coming months. “It shouldn’t take a big bite out of confidence,” she said.
The consumer confidence survey is based on a representative sample of 5,000 U.S. households.