Image Source: Pexels

Consumer confidence improved in May, marking the first time that has happened since last November. The catalyst was improving trade relations, as the U.S. and China agreed to a 90-day pause on reciprocal tariffs earlier this month.

The overall Consumer Confidence Index rose 12.3 points to 98.0. It bounced up from a score of 85.7 in April, which was the lowest since the pandemic in 2020. April marked the fifth consecutive month of declines.

The overall index consists of two components, the Present Situation Index and the Expectations Index, which track current and forward-looking perspectives, respectively.

The Present Situation Index jumped 4.8 points in April to 135.9 – which is well above the baseline of 100, reflecting robust confidence in the economy right now.

The Expectations Index, which tracks consumers’ short-term outlook for income, business, and labor market conditions, has lagged. Last month, the Expectations Index dropped to a 14-year low of 54.4, driven by concerns about tariffs and fears of a recession.

In May, expectations improved by 17.4 to 72.8, which is still historically low, but obviously much improved. For context, a score below 80 for the Expectations Index signals a recession is likely, at least in the minds of consumers.

“Consumer confidence improved in May after five consecutive months of decline,” said Stephanie Guichard, senior economist, global indicators at The Conference Board, which produces the report. “The rebound was already visible before the May 12 US-China trade deal but gained momentum afterwards. The monthly improvement was largely driven by consumer expectations as all three components of the Expectations Index—business conditions, employment prospects, and future income—rose from their April lows.”

More confident in stock market

Consumers were also more bullish on stocks in May, reflecting a surge that saw the Nasdaq Composite climb by about 10% in May and the S&P 500 jump around 7%.

The Conference Board found that 44.4% expect the stock market to move higher over the next 12 months, which is up from 37.6% in April. Conversely, only 37.7% expect stocks to go down in May, which is far fewer than the 47.2% of consumers that believed stocks would plummet in the April survey.

In addition, there was a notable increase in the percentage of Americans who planned to spend on big ticket items, like homes, cars, and vacations, as well as appliances and electronics.

Consumers also expressed a higher likelihood of purchasing services, with dining out cited most often. Plans to spend on streaming services, movies, theater, live entertainment, and sporting events also rose in May.

Finally, about 48% were either somewhat or extremely worried about buying items that they want, while 47% were somewhat or extremely worried about buying things they need. Only 23% were somewhat or extremely worried about being laid off. Those attitudes are reflected in a higher percentage, 19.2%, who expect more jobs to be available, up from 13.9% in April. Also, 18% of consumers believe their incomes will increase, up from just 15.9% in April.

“Consumers were less pessimistic about business conditions and job availability over the next six months and regained optimism about future income prospects,” Guichard said. “Consumers’ assessments of the present situation also improved. However, while consumers were more positive about current business conditions than last month, their appraisal of current job availability weakened for the fifth consecutive month.”

More By This Author: