Consumer Confidence Dips In May Amidst Inflation Worries

US consumer confidence edged lower in May as Americans’ view of their present and future economic prospects dimmed in the midst of persistent inflation. The Conference Board reported Tuesday that its Consumer Confidence Index dipped to 106.4 in May — still a strong reading — from 108.6 in April.

The Index, which had recovered strongly last year from the Covid-19 recession, peaked late last year and has been trending lower since then. The Conference Board’s Present Situation Index, which measures consumers’ assessment of current business and labor conditions, also fell in May to 149.6 from 152.9 in April.

The Expectations Index, based on consumers’ six-month outlook for income, business and labor market conditions, also declined in May, to 77.5 from 79 in April. It was above 80 in February and remains a weak spot in the survey.

Most forecasters agree that rising inflation is the main driver bringing down the Confidence Index among consumers. Inflation soared over the past year at its fastest pace in more than 40 years, with rising costs for just about everything negating Americans’ pay raises.

The Labor Department reported earlier in May that consumer prices jumped 8.3% in April from a year ago. That was below the 8.5% year-over-year surge in March, which was the highest since 1981. On a monthly basis, prices rose 0.3% from March to April, the smallest rise in eight months.

US producer (wholesale) prices soared 11% in April from a year earlier, a hefty gain that indicates high inflation will remain a burden for consumers and businesses in the months ahead.

Purchasing intentions for big-ticket items — cars, homes and major appliances — all cooled slightly again in May, the Conference Board said. Rising costs remain the top concern for consumers, as their inflation expectations were mostly unchanged from April’s elevated levels.

Consumers were again slightly less optimistic about the labor market, even as US employers have added at least 400,000 jobs for 12 straight months, pushing the unemployment rate down to 3.6%. That’s the lowest rate since the pandemic erupted two years ago and just above the half-century low of 3.5% which was reached two years ago.

The share of consumers who said jobs were “plentiful” decreased to 51.8%, the lowest in a year. Still, consumers stayed generally upbeat about the labor market six months from now.

“Looking ahead, expect surging prices and additional interest rate hikes to pose continued downside risks to consumer [confidence and] spending this year,” said Lynn Franco, the Conference Board’s senior director of economic indicators.

Based on the sharp rise in wholesale prices earlier this year, it looks like inflation will continue to rise over the next several months. This almost certainly means the Fed will hike short-term interest rates at least at its next several policy meetings.

This rising inflation/rising interest rate environment has been bearish for stocks in recent weeks. The current downdraft in stocks has seen the Dow, the S&P 500 and the Nasdaq all take a hit this year. The Dow is down 11.2% off its recent highs; the S&P 500 is down 14.8%; and the Nasdaq has shed a whopping 24.5% in the current drawdown.

The mainstream media continues to bash the economy, despite the fact that their guy is in the White House. This continues to puzzle me. In any event, the US economy just turned in the strongest growth in decades in 2021 as we quickly sprang back from the Covid-19 recession.

The fact that GDP was modestly lower in the 1Q of this year should not surprise anyone after the strong run we saw last year. But to hear the media tell it, we are definitely headed for a recession this year and very likely a severe one.

Yet the latest Bloomberg survey of leading economists finds that most expect the economy to grow by 2-3% for all of 2022. I don’t see why not. The economy begins and ends with jobs, and the labor market remains extremely strong. A near-record 11.4 million unfilled jobs remain open and employers are struggling to find people to fill them.

This and more suggest the economy will rebound in the second half of this year. I expect it is already happening. So, be suspect when the mainstream media tells you the economy is going into a recession any day now.

Again, I don’t know why the media is so negative on things when their guy is in the White House. It would seem to me they would be talking up the economy to support the president, but they aren’t. Go figure. If you have a theory on why this is happening, let me know.

Which brings me to close with this: I welcome your feedback – positive or negative. I read every comment you send me. I consider all requests and recommendation seriously. So, keep them coming. I would like to hear from more of you.