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Where US Consumer Confidence is Headed in the Coming Months

Is the current state of consumer confidence as good as it gets, given indications of a slowing down in plans to buy a home or a car?

Since the Conference Board’s Consumer Confidence Index is about taking the “temperature” of the consumer mindset, the April report would suggest the U.S. economy is holding its own.

The Index currently stands at 129.2, up from 124.2 in March, according to Conference Board on Tuesday. Both components of the Index also saw gains. The Present Situations Index rose to 168.3 from 163, and reflects an assessment of current business and labor conditions. The Expectations Index rose to 103.0 from 98.3, and measures consumers’ short-term outlook for business or labor conditions. The latter component is often considered the more important one because it reflects a read on consumer sentiment projected over the next six months.

But there are a couple of hitches in the April report. According to Lynn Franco, senior director of economic indicators at The Conference Board, “Consumer confidence partially rebounded in April, following March’s decline, but still remains below levels seen last fall.”

The Consumer Confidence Index is seen as an important economic indicator because spending represents about 70 percent of the country’s gross domestic product. At that sizable percentage, consumer spending can help grow the economy forward or even reflect the start of a economic contraction.

Franco said the latest report indicates consumers are expecting the “economy to continue growing at a solid pace into the summer months.”

One data point from the April reading that is often a good indicator of the consumer mindset is the respondents’ view of the labor market. The thinking has been that if consumers have jobs and money to spend, they would be more optimistic about the economy and their personal finances.

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Respondents who said jobs are “plentiful” rose to 46.8 percent from 42.5 percent, while those who said they expect more jobs in the months ahead rose to 17.2 percent from 16.8 percent. Yet in spite of what appeared to be a positive view of the jobs front, 21.5 percent of the respondents surveyed on their short-term income prospects said they expect current levels to say unchanged.

In short, there shouldn’t be any significant change over the early part of the summer, but there are probably some hiccups on the horizon that could warrant tracking.

Jeremy Cohn, economist at Moody’s Analytics, explained that most of the gains in confidence was led by respondents under age 35, although those between ages 35 to 54 also seemed somewhat upbeat. Confidence levels for those over 55 fell 2.5 points from a year ago. And while it can be expected that confidence fell among the lowest income earners, it also fell among the highest earners as well.

Perhaps the real concern was that “consumer purchasing plans weakened across the board, with fewer respondents saying that they plan to buy a home or vehicle in the next six months,” the Moody’s economist noted. Cohn believes that “consumer spending has hit a soft patch, and the weakening in purchasing plans is concerning.” He noted both that real consumer spending rose just 0.1 percent in January after dropping 0.6 percent in December, and that “retail sales continue to disappoint.”

Cohn pointed out that prices for furniture, appliances and similar items have “soared” since the start of 2018, with the large increase in appliance prices probably reflecting tariffs that the Trump administration has levied on Chinese imports of dishwashers, refrigerators, air conditions and other products.

“Even American-made home goods are feeling the squeeze, and the rising prices are sapping consumers’ willingness to buy, with appliance purchase plans down almost 6 points from a year ago. Inputs such as steel, textiles and wood products are also subject to import duties,” Cohn explained.

What else is there to keep an eye on for a read on the direction of the U.S. economy and consumer spending?

The Paychex/IHS Markit Small Business Employment Watch for April showed that job growth remained “relatively consistent” for the first four months of 2019. It slipped 0.03 percent to 98.77 in April. James Diffley, chief regional economist at IHS, said, “While weak, the rate of small business hiring has been consistent, with the national index lightly below 99 for the fifth consecutive month.”

That has Moody’s Cohn cautioning: “Although businesses may be following through on hiring plans already in motion, reducing the number of job postings would be a first signal that hiring will slow in the near term.”