Consumer Confidence Soars, But Expectation of Income Growth Is Flat

Measures of consumer confidence rose in May. According to Thomson Reuters and the University of Michigan, the Consumer Sentiment Index increased by 10.6% on a monthly seasonally adjusted basis to 84.5. The final reading of consumer sentiment was revised up from the preliminary reading of 83.7 that was released earlier in the month. Similarly, the Conference Board reported that its Consumer Confidence Index rose by 10.4% on a monthly seasonally adjusted basis in May to 76.2. Also, the original April reading, 68.1, was revised up to 69.0. The increase in Consumer Confidence reflected growing optimism by consumers in both their present situation and in their expectations for the future. According to the Conference Board, the Consumer Confidence – Present Situation Index rose by 9.4% over the month while the Conference Confidence – Expectations Index grew by 11.0%.

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Despite the spike, consumers’ growing optimism about the future might not result in additional spending. As chart 2 illustrates, the proportion of respondents expecting an improvement in employment and business conditions grew substantially on net. However, the change in the share of consumers expecting their income to grow over the next 6 months rose slightly on net. Net growth is calculated by subtracting the share of consumers expecting a “bad” outcome from the portion of respondents expecting a “good” outcome. Those expecting conditions to remain the same are excluded.

The increase in the net share of consumers expecting an increase in their income reflected both a decline in the share expecting a decrease in their income over the next 6 months and a drop in the percent of consumers expecting an increase in their income over the next 6 months. However, the percentage point decline in the portion expecting their income to fall was greater than the decline in the share expecting their income to increase. The share of consumers expecting their income to decrease in the next 6 months fell by 0.6 percentage points. However, the percentage of respondents that expect their income to increase in the next 6 months also fell, by 0.2 percentage points.

In contrast, the net change in the share of respondents expecting more jobs rose by 4.6 percentage points as the share expecting an increase in employment rose by 2.5 percentage points and the proportion expecting a decrease in employment fell by 2.1 percentage points. Similarly, the net change in the percentage of consumers expecting business conditions to improve rose by 4.7 percentage points as the share expecting improving business conditions rose by 2.0 percentage points and the portion expecting worsening business conditions fell by 2.7 percentage points.

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