A Concerned Consumer: Conference Board’s Latest Index

By at 31 May, 2022, 1:00 pm

by Raymond J. Keating –

The last two big pieces of data that we received on the state of the consumer were generally okay, especially given inflation.

First quarter GDP reported a solid gain in real personal consumption expenditures (see SBE Council’s analysis), and the latest retail sales report noted sales growth in nominal terms running ahead of inflation (see SBE Council’s analysis).

Now, we have the latest report on consumer confidence from The Conference Board to give us a feel as to where the consumer’s head is at, if you will. It turns out that consumer confidence declined slightly in May (106.4) versus April (108.6).

Present Situation vs. Expectations

When looking at the two sub-indexes, consumers are far more confident about current business and labor market conditions – the Present Situation Index (though this declined in May) – as opposed to the Expectations Index, which serves up short-term views on income, business and labor markets.

Lynn Franco, senior director of economic indicators at The Conference Board, explained:

“Overall, the Present Situation Index remains at strong levels, suggesting growth did not contract further in Q2. That said, with the Expectations Index weakening further, consumers also do not foresee the economy picking up steam in the months ahead. They do expect labor market conditions to remain relatively strong, which should continue to support confidence in the short run.”

At the same time, however, inflation is having an impact of consumer intentions. Franco noted:

“Meanwhile, purchasing intentions for cars, homes, major appliances, and more all cooled—likely a reflection of rising interest rates and consumers pivoting from big-ticket items to spending on services. Vacation plans have also softened due to rising prices. Indeed, inflation remains top of mind for consumers, with their inflation expectations in May virtually unchanged from April’s elevated levels. Looking ahead, expect surging prices and additional interest rate hikes to pose continued downside risks to consumer spending this year.”

So, as far as any survey can go, this take on consumer confidence is decidedly mixed. In fact, one would have to say that it leans negative given apparent intentions to rein in consumer spending thanks to inflation, and a weak Expectations Index.

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


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