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Economy in Brief

U.S. Consumer Confidence Weakens in May
by Tom Moeller  May 31, 2022

• Present situation & expectation readings decline.

• Expectations for employment diminish.

• Inflation expectations ease.

The Conference Board's Consumer Confidence Index during May fell 2.0% (-11.3% y/y) to 106.4 following a 0.9% April rise, revised from -0.3%. A reading of 103.9 had been expected in the Action Economics Forecast Survey.

Consumers' views of both current and future economic conditions dimmed this month. The Present Situation Index fell 2.2% this month (+0.6% y/y) to 149.6 after falling 0.6% during April to 152.9. The Consumer Expectations index weakened 1.9% in May (-23.2% y/y) to 77.5, following a 3.0% April increase.

Labor market readings also eroded. The jobs gap, representing the difference between respondents indicating that jobs are plentiful and those saying jobs are hard to get, declined to 39.3% from the near-record 44.7% in April. Calculated by Haver Analytics, this series has had a 69% correlation with the unemployment rate over the last ten years. The jobs plentiful measure fell this month to 51.8%, a twelve-month low and down from the record 56.7% in March. The jobs hard-to-get measure rose sharply to 12.5% of respondents, up from an expansion low of 9.6% in March.

Current business conditions were perceived as good by a slightly increased 21.1% of respondents in May. Expectations that business conditions would improve in six months fell sharply 17.7% of respondents, down from 42.5% in April 2020. More jobs were expected in six months by a 18.5% of respondents, roughly half the percentage in March of last year. The percentage expecting rising income improved notably to 19.0% of respondents, a ten-month high.

Inflation expectations eased, but pricing power will remain high. The expected inflation rate in twelve months slipped to 7.4%, down from the March peak of 7.9%. It remained up, however, from a 4.4% low in January of 2020. More than two-thirds of respondents expected that interest rates would rise over the next twelve months, the most in three years. The share of respondents planning to buy a home within six months eased to 5.9% and remained below a July 2020 high of 7.7%. Those planning to buy a major appliance fell sharply m/m to 45.2% of respondents, a 12-month low and below the 53.9% high registered in July 2021.

The Consumer Confidence data are available in Haver's CBDB database. The total indexes, which are indexed to 1985=100, appear in USECON, and market expectations are in AS1REPNA.

Responding to High Inflation, with Some Thoughts on a Soft Landing from Governor Christopher J. Waller is available here.

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