Consumer confidence inched down in May to the lowest level in six months as sentiment on both the current economy and expectations weakened.
More important, labor market sentiment fell to the lowest level in two years, signaling a potential significant slowdown in May’s job gains. More data on the jobs market will be released on Friday—a key date together with next week’s consumer price index report to determine whether the Federal Reserve will raise interest rates again in June.
The top-line confidence level fell to 102.3 from an upwardly revised 103.7, the Conference Board reported on Tuesday.
The closely watched labor differential index—which indicates how consumers are viewing the labor market—plunged by 5.9 points to 31 on the month, the lowest in two years.
Given the consumer confidence data, our calls for a net gain of 220,000 payroll jobs—a decline from 253,000 in April—and an increase in the unemployment rate to 3.6% from 3.4% seem reasonable. More updates will come after the release of data that covers job openings, private payrolls and manufacturing in the coming days.
While confidence fell on the month, consumers’ appetite for buying big-ticket items like housing, automobiles and major appliances increased, implying a solid spending outlook despite elevated inflation and recession fears.
A rise in durable goods and housing spending might continue the rebound in those categories’ prices, further adding to the Fed’s challenge in restoring price stability.
Such an outlook for inflation does not help the Fed’s effort to considering a pause in rate hikes.
Underlying inflation according to last week’s PCE price index remained at 4.5%, thus showing no sign of getting down to 3% by year’s end, which was in the Fed’s and most market participants’ forecasts.
