By Natalie DeCoste
The pandemic hit U.S. consumer confidence hard, but Americans’ faith in the economy began rebounding as vaccination rates have grown. Consumer confidence has taken a slight dip in May but remains near its highest point since the start of the pandemic.
On Tuesday, the Conference Board reported that the Consumer Confidence Index slightly fell to 117.2, down from 117.5 in April. April’s index was the highest value since February of 2020, just before the pandemic began.
Other markers reported by the Conference Board showed that the Present Situation Index, which is based on consumers’ assessment of current business and labor market conditions, increased from 131.9 to 144.3.
On the negative end of the report was the Expectations Index, which is based on consumers’ short-term outlook for income, business, and labor market conditions. This index fell to 99.1 in May, down from 107.9 in April.
The dip in consumer confidence may have happened because the influx of cash consumers received from stimulus checks may no longer be impacting the assessment of confidence. Indicators for this fact include the Commerce Department’s report that retail sales in the U.S. flattened out in April after soaring in March when American households received their checks from the government, which boosted their spending.
“Consumers’ assessment of present-day conditions improved, suggesting economic growth remains robust in Q2. However, consumers’ short-term optimism retreated, prompted by expectations of decelerating growth and softening labor market conditions in the months ahead. Consumers were also less upbeat this month about their income prospects—a reflection, perhaps, of both rising inflation expectations and a waning of further government support until expanded,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board.
Recent data from the government indicates that the nation’s gross domestic product is expected to continue to tick up. The GDP rose 4.3% during the fourth quarter of 2020. Some economists expect to see an annual pace of 10% or more during the current April-June quarter. This significant growth will be driven by a surge in people traveling.
“Child Tax Credit payments begin reaching parents in July. Overall, consumers remain optimistic, and confidence should remain resilient in the short term, as vaccination rates climb, COVID-19 cases decline further, and the economy fully reopens,” said Franco.
Even with the relatively moderate decline in the consumer confidence index, there were still negative economic repercussions. The Dow Jones Industrial Average fell 82 points which translates to 0.24%. Meanwhile, the S&P 500 and the Nasdaq Composite lost 0.21% and 0.03%, respectively.
Despite Franco and the Conference Board’s report of a moderate decline in the economic situation for the future, others are less convinced. Others see the loss of government stimulus as a potential cause for a dive in consumer confidence.
“Consumers’ diminished confidence about business conditions, the labor market, and income prospects over the next six months could be due to waning fiscal support and higher inflation,” said Kathy Bostjancic, chief U.S. financial economist at Oxford Economics.