Consumer Confidence Rises in May
May 25, 2010 - 12:34 PMAmericans' confidence in the economy rose in May for the third straight month, fueled by growing optimism about future job prospects.
Still, many worry improvements in shoppers' mood and spending may be reversed because of sharp declines on Wall Street fueled by fears that a debt crisis in Europe could hammer global growth. Already, there are signs pointing to a weakening business at stores in May after a solid spring season.
The Conference Board, based in New York, said Tuesday that its Consumer Confidence Index rose to 63.3, up from a revised 57.7 reading in April. Economists surveyed by Thomson Reuters had expected 59.
The increase was boosted by consumers' outlook over the next six months, one component of the index, which soared to 85.3 from 77.4, the highest seen since it reached 89.2 in August 2007, before the economy entered in a recession.
The other component of the index, which measures how shoppers feel now about the economy, rose to 30.2 from 28.2.
The index - which measures how consumers feel about business conditions, the job market and the next six months - has been recovering fitfully since hitting an all-time low of 25.3 in February 2009.
A reading above 90 indicates the economy is on solid footing; above 100 signals strong growth. Economists watch the number closely because consumer spending including health care and other major items, accounts for about 70 percent of U.S. economic activity.
In a release,issued Tuesday, Lynn Franco, director of The Conference Board Consumer Research Center, said that though confidence is still weak, it appears "to be gaining some traction."
Economists believe confidence will remain weak for at least another year because of stubbornly high unemployment. Employers are expected to add 425,000 jobs in May, up from 290,000 jobs in April, but economists project the unemployment rate will be 9.8 percent, down only slightly from 9.9 percent. The Labor Department is due to release the monthly job figures June 4.
But concern among investors is growing that U.S. economic improvements, including in housing and consumer spending, could be reversed. The Dow Jones industrials plunged below 10,000 Tuesday as investors worried about a global economic slowdown and tensions between North and South Korea.
The Dow fell 206.51, or 2.1 percent, to 9,859.76 in morning trading. It closed at 10,066 on Monday and has fallen 1,388 points, or more than 12 percent, from its recent high of 11,205, reached April 26.
Franco said in an interview with The Associated Press that it's too soon to know whether Wall Street's swings will drag down consumers' confidence. It depends on how long the volatility lasts, and whether such stock declines would be offset by job gains.
"It doesn't directly hit home, but it could hit home," said Franco, referring to the specter of declining net worth.
Adding to the dark mood was a downbeat report from a key housing index. The Standard & Poor's/Case-Shiller 20-city home price index, released Tuesday, fell 0.5 percent in March from February, a sign that the housing market remains weak even as mortgage rates are near historic lows. There are worries that last month's expiration of the government's home buyer tax credit will hurt sales in the coming months.
Retailers' solid spring has run into speed bumps in May because of cool weather and the volatile stock swings.
Michael P. Niemira, chief economist at the International Council of Shopping Centers, said a key measure of retail revenue rose about 2 percent to 2.5 percent during the past two weeks. That's below Niemira's previous growth estimate of 3.5 percent.
The figure is based on revenue at stores open at least a year and is considered a key indicator of a retailer's health.
The Conference Board survey - based on a random survey of consumers sent to 5,000 households from May 1-18 - includes volatile days in the stock market, but excludes the 376-point plunge last Thursday, its worst one-day drop in more than a year.
"We were starting to see some good signs that we were building momentum" in spending, said Dennis Jacobe, chief economist at Gallup. "This has put a wrench into the works. The momentum has come to a halt."
Gallup's poll of 1,000 shoppers a day shows their outlook has deteriorated from April, Jacobe said. The percentage who think the economy is going to worsen is 60 percent, up from April's 54 percent. That deterioration is also being seen among those with average houshold incomes of $90,000 or more, he said.
But there are two positives - gas prices are easing and mortgage rates are declining, partly because of the financial turmoil.
AP Real Estate Writers J.W. Elphinstone in New York contributed to this report.
(Copyright 2010 Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.)