The Conference Board said that the Consumer Confidence Index rose to the highest level in five years. The index increased from 69.0 in April to 76.2 in May, and the last time it was at this point was in February 2008. As such, it mirrors a similar result seen in the University of Michigan and Thomson Reuters survey, which was released a couple weeks ago. (A revised University of Michigan number for May will be released on Friday.) These two measures of consumer sentiment tend to indicate that Americans have become more optimistic, ending a lull in confidence seen between December and April.
The Conference Board noted that opinions about the current and future economy were both higher in May, with the largest gains seen in the forward-looking measure. The expectations component of the index rose has risen from 63.7 in March to 74.3 in April to 82.4 in May.
With that said, it is important to keep the rise in confidence in perspective. Ideally, we would like to have consumer confidence values of 100 or greater. (The index for the Conference Board survey is 1985=100.) The last time it was over 100 was August 2007. Even with May’s increase, over one-third of Americans feel that jobs are hard to get, reflecting the persistent headwinds that continue to challenge the U.S. economy.
In the end, we tend to watch consumer confidence surveys because consumer spending accounts for roughly 70 percent of GDP. To the extent that sentiment impacts purchasing patterns (which is not always the case), we need to focus on them. The Conference Board’s survey did note some continued uneasiness in its respondents’ buying plans. The percentage of those planning to purchase autos and homes were down slightly from the month before, with appliance spending intentions marginally higher. Of course, the real evidence will come from official data. Retail sales increased somewhat in April, and we will get new personal spending data for April on Friday.
Chad Moutray is chief economist, National Association of Manufacturers.