Rise in Consumer Confidence Good News for the US Economy

The rise in the Conference Board's consumer confidence index in May to 54.9 following the April’s 40.8 (revised from 39.2) reading marked the largest monthly rise in the index since April 2003. Expectations within financial markets were for a more muted increase to 42.6. The index is now at its highest level since before the intensification of the credit crisis in September of last year.

Consumer expectations were the main driving force behind the rise in the headline figure. The expectations component rose to 72.3 from April’s 51 reading, putting it at its highest level since the end of 2007. Perceptions of present conditions rose to 28.9 from the prior month’s 25.5.

With respect to labour market conditions, the index of respondents reporting that jobs were “plentiful” rose to 5.7 from 4.9 in April. Those reporting jobs are “hard to get” fell to 44.7. This brought the labour market differential up to -39 from -41.7 in April.

Overall, today’s report is unambiguously good news for the U.S. economy going forward, not only because of the magnitude of the rise, but also because it marks the third consecutive month of gains in the index. The report joins the chorus of indicators pointing to a moderation in the pace of decline in quarterly growth.

With consumer spending accounting for more than 70% of U.S. output, rising confidence is an important ingredient for a return to positive growth. During the second half of the year, we expect the double dose of stimulus from both the fiscal and monetary sides to propel U.S. growth back into positive territory.