The Consumer Confidence Index fell slightly more than expected in May, with the overall index falling 1.5 points to 117.9. All of the decline was in the expectations component, which fell 2.8 points.

Consumers Remain Relatively Upbeat About Jobs and Income

The Consumer Confidence Index declined slightly more than expected, as the overall index fell 1.5 points to 117.9. Even with the drop, consumer confidence remains relatively solid. The overall index remains above the average for the six full months of data since the election, which had raised hopes that some growth-oriented fiscal stimulus would be enacted this year. That still may happen, but consumers have clearly scaled back their expectations. After hitting a post-recession high of 112.3 in March, the expectations series has fallen 9.7 points over the past two months.

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The decline in expectations does not signal any increase in anxiety about the economy. The proportion of consumers expecting business conditions to increase, more jobs to be created and incomes to increase over the next six months spiked during the first three months of this year and has come back down from its cycle highs. All three series remain solidly positive, with more than twice as many consumers expecting business conditions to get better over the next six months than to get worse. At least twice as many consumers also expect their income to rise over the next six months than expect it to fall.

Employment prospects are likely the most important driver of consumer confidence today. The proportion expecting fewer jobs to be created over the next six months fell 1.8 points in May and is now at its lowest level since September 2000. The improvement is consistent with the continued slide in weekly unemployment claims and drop in the unemployment rate.

Improving employment conditions were responsible for the all of the increase in the present situation component, which rose 0.4 points to 140.7 in May. The proportion of consumers stating that jobs were hard to get tumbled 1.2 points in May to 18.2, while the proportion stating that jobs were plentiful fell 0.4 points to 29.9 percent. The labor market differential, which takes the difference between these two series, rose 0.8 points to 11.7.

Consumers took a slightly more cautious view of current business conditions, with the proportion stating present business conditions were good falling 1.4 points to 29.4 percent and the proportion stating present conditions were normal rising 1.4 points to 56.9. The proportion of consumers rating present conditions as bad in May was unchanged at 13.7. The employment components of the Conference Board survey are often looked to for any possible clues for the upcoming employment report. This May data were up on balance, but not decisively.

Buying plans for automobiles, homes and major appliances all declined. While these data are notoriously volatile, all three series hit their lowest levels this year. This bears watching but runs counter to recent reports citing improving consumer finances.

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