Consumer Confidence Dips Again In May As Inflation Darkens Outlook For US Economy

Consumer confidence in the U.S. economy dipped slightly in May as more Americans continue to express pessimism about the state of the job market and business conditions.

On Tuesday, the Conference Board published its monthly survey results for consumer confidence and it found that positive sentiments had eroded from 108.6 in April to 106.4.

Broken down further, Conference Board's Present Situation Index — a measure of consumers' sentiments about current business and labor conditions — dipped from 152.9 to 149.6. Its Expectation Index, which looks over the short-term horizon, fell from 79.0 to 77.5.

Lynn Franco, Senior Director of Economic Indicators at the Conference Board, noted that the declines in the Present Situation Index were driven solely by a "perceived softening of labor conditions" but overall remained at strong levels. In contrast, she noted that the Expectations Index weakened, which indicated that consumers "do not foresee the economy picking up steam" in the near future.

The labor market has generally been strong. Unemployment has surpassed pre-pandemic lows and companies are continuing to report a plethora of openings for workers. At the same time, the general tightness of the labor market has prompted some concern at the Federal Reserve, which cites that the demand for labor remains too high for supply to accommodate.

In a bright spot for the economy, the Conference Board noted that consumers' appraisal of current business conditions improved in May. Approximately 21.1% of consumers said business conditions were good compared to 20.8% in April while only 20.7% described them as "bad," down from 22.2% saying so a month earlier.

The optimism is caveated by many consumers predicting the situation will worsen in the near term.

Asked what their expectations were for the economy in six months' time, only 17.7% of consumers said they expect business conditions to improve, compared to 18.6% last month. By contrast, 24.9% said conditions would worsen -- more than a 3% increase from April, when 21.7% expressed similar pessimism.

Inflation is considered one of the chief reasons for this lack of optimism, said Franco. She described inflation as remaining at the "top of the mind" for consumers and noted that their inflation expectations have essentially remained despondent, especially as the Fed continues implementing new interest rate hikes to reduce inflationary pressures.

"Looking ahead, expect surging prices and additional interest rate hikes to pose continued downside risks to consumer spending this year," Franco said in a press release.