May Consumer Confidence Stronger than Expected, But Inflation Expectations Rising

Consumer confidence increased to 108 in May (consensus 105). Over the past six months the level has ranged between 111.2 and the revised higher 106.3 for April (from 104). The Conference Board surveys 5,000 households monthly for this survey.

Expectations for both present and future conditions rose in May. Stock price gains were an obvious positive for present situation section of the index, but the expectations, though improved, remain near recent lows.

Consumers reported a decline in jobs hard to get. The proportion of participants looking for incomes to rise, or drop, over the next six months each declined.

Business conditions are anticipated to improve over the next six months, and present business conditions rose to the highest level since 2001.

Historically gas price changes have had less impact on this consumer confidence survey than on other surveys, but the higher prices are a concern for inflation. The one year inflation expectations rose +.4% to 5.5%, just shy of the 5.6% peak of last summer, and up sharply from 4.6% in February.

Home buying intentions dropped again, falling to 2.9% of participants looking to buy in the next six months.

The improvement in confidence is tied more to an improved perception of the current conditions, while the outlook remains cautiously optimistic, and the gap between the two continues to widen. The view of the labor market was neutral to slightly improved, and is unlikely to support rising consumption, as real income growth stagnates. The net is an expectation of slow growth, with concerns persisting about inflation and higher gasoline prices.