The Conference Board’s consumer confidence report will be coming out today. According to economists polled, CB’s consumer confidence index could rise, reflecting an uptick in consumer sentiment.
The consumer confidence index is forecast to rise a notch higher from 129.2 in April to 130.1 in May. The positive forecasts for the consumer confidence index stem from the general outlook prevailing so far.
Previously, various other measures of consumer confidence gave a similar picture. Recently, the University of Michigan’s consumer confidence index rose to 102.4 in May, from 97.2 in the previous month. The increase in the index was the highest level seen in the last 15 years.
But the optimistic report did not accurately capture current conditions. The survey was held before the breakdown in US and China trade talks.
The CB’s consumer confidence report for April showed that the present conditions index, a measure of the current expectations rose from 163.0 to 168.3. The expectations index also rose from 98.3 to 103.0 in April.
Furthermore, consumers were fairly confident about the economic outlook. Business conditions expectations index rose from 17.2% to 19.9% in April.
Will Consumer Confidence Rise in May?
Ahead of the release of the consumer confidence report, the main question is whether US consumers were able to maintain optimism in May. During the month, the US and China trade talks worsened.
The consumer confidence in the month before was largely boosted due to the optimistic view that the world’s two largest economies could find common ground on trade. But things took a turn for the worse after the US raised tariffs on Chinese goods in recent weeks.
Consumer’s confidence in the economy also grew, reflecting the uptick in the US economy. Economic growth in the US posted a solid 3.2% increase during the first three months of the year.
The labor market was one of the bright spots in the US economy with the unemployment rate staying near multi-decade lows. Wages were also seen improving at a gradual rate during the period.
With inflation staying muted, this put more spending power into the hands of consumers. Adding to this, the Fed leaving interest rates unchanged was also seen keeping mortgage rates in check.
While the previous month’s consumer confidence report reflected the overall positivity in the US economy during the time, trade war tensions could potentially dent the sentiment in the index.
Even if we get to see an increase in the consumer confidence for May, further surveys down the line could reflect the shifting ground reality. As a result, investors aren’t likely to read too much into today’s Conference Board’s consumer survey results.
Will Expectations on Business Sentiment Remain Strong?
The previous month’s survey showed that business sentiment was strong. Consumers expected to see further uptick on the business side.
But the optimistic view on business will see check as consumers weigh the risks of higher tariffs on imports from China. Besides China, the US has also threatened Europe, namely Germany on higher tariffs on automobile imports.
The market uncertainty due to the ongoing tensions is evident from the recent stock market volatility. Equity indices remain on shaky grounds as investors assess the full impact of the trade wars.
The week ahead could once again prove to be another testing week for risk assets. There is a bit of optimism that the US and China will eventually agree to a trade deal.
The impact of today’s consumer survey is therefore likely to see a muted reaction. Economists are already scaling down their expectations of the GDP growth for the second quarter of the year. This largely stems due to the trade uncertainty with China.
Based on the above, we are of the view that today’s CB consumer confidence index will be irrelevant. There is a scope that the report could capture the uncertainty and lead to a drop in the confidence index.