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Economy in Brief

U.S. Consumer Confidence Increases Again On Improved Expectations
by Tom Moeller May 26, 2009

Consumers' attitudes are rising even further on expectations that the worst of the recession has passed. The May index of consumer confidence, reported by the Conference Board, improved for the third consecutive month and the latest two gains have been quite sharp. Rising to its highest level since last September, the reading of 54.9 was up by more than half from the February low. Despite the gains, however, the index level remained down by one half from the 2007 highs. The latest figure was quite a bit firmer than Consensus expectations for a reading of 43.0.

The Conference Board data can be found in Haver's CBDB database.

During the last ten years there has been an 86% correlation between the level of consumer confidence and the y/y change in real consumer spending.

Following a firm gain in April, the expectations component again drove the rise in confidence this month with a 41.8% m/m rise. The latest monthly increases have driven the index to the highest level since late 2007. The percentage of respondents expecting business conditions to improve jumped again to 23.1% which was the highest level since 2004. A reduced 17.8% expected conditions to worsen. That improvement was expected by 20.0% of respondents to generate more jobs, nearly triple the percentage at the recent low.

Consumers' assessment of the current economic conditions has yet, however, to improve much at all. The present conditions index rose just modestly and remained near its recent low. It remained off by nearly two-thirds from a year earlier. Jobs were seen as hard to get by a slightly reduced 44.7% of respondents, still near the highest since 1992, and jobs were seen as plentiful by only 5.7% of respondents. Business conditions were seen as good by just 8.7% and that was near the 1991 low. Consumers who thought business conditions were bad rose slightly to 45.3%, still near the highest since 1983.

Expectations for the inflation rate in twelve months have been roughly stable since November at 5.6%. That's down from last year's high of 7.7%. Expectations about interest rates have started to increase with 47.0% of respondents expecting higher rates while 18.1% expect rates to fall. A greatly increased 35.8% of respondents expected stock prices to rise.

Conference Board  (SA, 1985=100) May April Y/Y % 2008 2007 2006
Consumer Confidence Index 54.9 40.8 -5.5 57.9 103.4 105.9
  Present Situation 28.9 25.5 -61.1 69.9 128.8 130.2
  Expectations 72.3 51.0 52.9 50.0 86.4 89.7
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