PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Consumer Confidence Unchanged in May, But Concerns Appear to Grow

By at 25 May, 2021, 12:42 pm

by RAYMOND J. KEATING-

The Conference Board’s Consumer Confidence Index basically held steady in May.

The index now came in at 117.2 (1985=100) in May, which was down ever so slightly from April’s  117.5.

The Conference Board’s measure is actually a composite of two indices. The Present Situation Index offers consumer views on the current business and labor markets. That moved up from 131.9 in April to 144.3 in May.

But the second index, the Expectations Index, which presents consumer short-term outlook on income, business, and labor markets, declined from 107.9 in April to 99.1 in May.

The trouble with the Consumer Confidence Index is that it tends to be a lagging indicator. That’s not surprising given that consumers are followers, that is, they take their cues from elsewhere, such as business startups, investment and hiring. But other factors come into play, of course, including views on policymaking.

Consumer Outlook 

Perhaps the most valuable aspect of this monthly measure is the Expectations Index, as it attempts to capture consumer views on what lies ahead.

Lynn Franco, Senior Director of Economic Indicators at The Conference Board, offered the following assessment of these latest numbers:

“Consumers’ assessment of present-day conditions improved, suggesting economic growth remains robust in Q2. However, consumers’ short-term optimism retreated, prompted by expectations of decelerating growth and softening labor market conditions in the months ahead. Consumers were also less upbeat this month about their income prospects—a reflection, perhaps, of both rising inflation expectations and a waning of further government support until expanded Child Tax Credit payments begin reaching parents in July.”

Perhaps.

But another take on reduced confidence in what lies ahead is the reality that the massive increase in government spending that has already occurred due to the pandemic, further vast government spending increases being proposed by the Biden administration, the significant tax increases being pushed by Biden (see SBE Council’s analysis on how these tax increases will hit small businesses hard), and increased regulatory activity and proposals will all come with severe costs to our economy, eventually cutting into entrepreneurship, investment, economic, income and job growth.

If you think that government can just spend, tax and regulate with impunity, then there would be no reason for worry. But the public generally knows better, and the decline in the Expectations Index just might reflect growing concerns over misguided policy proposals.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

 

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