Is April’s consumer confidence data telling us gray clouds could be on the horizon for business and labor conditions over the next six months?
Consumer confidence rose sharply again following a substantial gain in March and is now at pre-pandemic levels, hitting its highest point since February 2020 when the Index was at 132.6. The latest data from the Conference Board has the Consumer Confidence Index at 121.7, up from 109.0 last month.
But the Index has two components that measure different pieces of the confidence puzzle, one for current outlook and the other looking at the near term.
Current outlook
The Present Situation Index rose the most, soaring to 139.6 from 110.1. This component measures consumers’ assessment of current business and labor market conditions.
The percentage of consumers who said business conditions are “good” rose to 23.3 percent from 18.3 percent. The percentage of respondents who said business conditions are “bad” fell to 24.8 percent from 30.1 percent. They also said the labor market improved, and those who said jobs are “plentiful” rose to 37.9 percent from 26.5 percent.
“Consumers’ assessment of current conditions improved significantly in April, suggesting the economic recovery strengthened further in early Q2. Consumers’ optimism about the short-term outlook held steady this month. Consumers were more upbeat about their income prospects, perhaps due to the improving job market and the recent round of stimulus checks,” Lynn Franco, senior director of economic indicators, said.
Stimulus checks were also a factor in the recent rise in U.S. retail sales, helping to boost apparel sales in March. And the National Retail Federation believes consumer spending will see more growth in the second half of the year, helped by a bigger push in the vaccination program’s rollout. In February the retail trade organization forecasted annual retail sales for the U.S. to grow between 6.5 and 8.2 percent. But now there’s the early stages of concern that drought conditions in the West and Southwestern U.S. could drive food prices higher, although what impact that might have on spending for discretionary purchases, such as apparel, is yet to be determined.
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Near-term challenges?
So, while conditions are good for now, it’s the second component—the Expectations Index—that could portend trouble ahead. It only increased moderately to 109.8 from 108.3 in March. And this component just happens to be the forward-looking measure that reflects the snapshot of consumers’ outlook over the next six months.
The assessment for the short-term outlook essentially remained stagnant from last month. While those who expect business conditions to improve inched up slightly to 40.5 percent from 40.3 percent, it was the outlook for the jobs front that shifted. The proportion who expect more jobs in the months ahead fell to 34.5 percent from 35.9 percent.
“Short-term inflation expectations held steady in April, but remain elevated. Vacation intentions posted a healthy increase, likely boosted by the accelerating vaccine rollout and further loosening of pandemic restrictions,” Franco said.
How consumers feel is largely dependent on the jobs front. If they have jobs—and can put food on the table—consumers will spend. And their spending power accounts for 70 percent of America’s economic engine, making the retail and service industries key components of the nation’s economy.
So, it may well be that the jobs factor will determine how often consumers would be willing to open their wallets in the months ahead.
Tim Quinlan, an economist at Wells Fargo Economics, said that the key question is centered on the “extent to which the robust consumer recovery will continue as stimulus checks no longer pad disposable income for households.”
Noting that the expectations component is constrained somewhat by a softening outlook regarding the job market, the economist said the April report is a “step in the wrong direction after trend improvement in the job market outlook over the past year.”
The Labor Department last week said seasonally adjusted first-time unemployment benefits claims for the week ended April 17 totaled 547,000. That figure was better than the week before, when the tally was 576,000, and far better than the consensus estimate of around 605,000.
States have started to ease restrictions in an effort to reopen their economies. That has ranged from allowing stores and restaurants to open for longer hours to increasing the number of consumers allowed at indoor establishments.
“Perhaps the recent drop in jobless claims will be accompanied by a return to the upward trend especially as more businesses in the leisure & hospitality space reopen,” Quinlan said.