Consumers Shrug Off High Gas Prices and See the Brightside
NEW YORK – Consumer confidence bounced back unexpectedly in May, helped by optimism about the job market even as shoppers' concerns about gasoline price-driven inflation increased.
The New York-based Conference Board said Tuesday its Consumer Confidence Index rose to 108.0 in May, up from a revised 106.3 in April. Analysts had expected the reading to fall to 104.5. The May reading was the highest since March when the index was at 108.2.
"The short-term outlook remains cautious and rising gasoline prices are having a negative impact on consumers' inflation expectations," said Lynn Franco, director of The Conference Board Consumer Research Center, in a statement
Franco added, "All in all, confidence levels continue to suggest growth, albeit at a slow pace."
The Present Situation Index, which measures how shoppers feel now about economic conditions, rose to 136.1 from 133.5 in April. The Expectations Index, which measures consumers' outlook for the next six months, edged up to 89.2 from 88.2.
Economists closely monitor consumer confidence since consumer spending accounts for two-thirds of all U.S. economic activity.
The upbeat data helped push stocks higher. The Dow Jones industrial average rose 33.16, or 0.25 percent, to 13,540.44
Gary Thayer, chief economist at AG Edwards & Sons Inc., called the Conference Board report "encouraging," noting that a still healthy job picture is offsetting shoppers' worries about higher gasoline prices.
"Although people may not be happy with high gasoline prices, they are happy with the job situation," said Thayer."...People are unhappy about things but they are not changing their buying habits significantly."
The report from the Conference Board was good news for the nation's retailers, which struggled through the worst same-store sales performance on record in April. Same-store sales are sales at stores opened at least a year and are considered a key indicator of a retailer's health.
The weak performance has fueled concerns that gasoline prices and the slumping housing market are eating away at spending. For now, the cutbacks in spending seem to be contained, according to Thayer.
And while data released Tuesday gave no clear signs of an end to the housing slump, Thayer noted that he feels confident that consumers can "work through continued weakness in housing" as long as the employment situation remains healthy. Standard & Poor's housing index on Tuesday showed that U.S. home prices fell 1.4 percent in the first quarter compared to a year ago, the first time since 1991 that prices have shown a quarterly decline.
On Thursday, the Commerce Department reported that sales of new homes surged in April by the biggest amount in 14 years, but the median price of a new home fell by the largest amount on record. On Friday, The National Association of Realtors reported that sales of existing homes fell by a larger-than-expected amount in April, while the median price of a home sold fell for a ninth straight month.
Thayer and other analysts will be closely watching the Labor Department's report on employment, to be released Friday. Economists are expecting 140,000 jobs to be added in May and the unemployment rate to remain at 4.5 percent.
That follows a disappointing report, released in early May, that showed that payrolls grew by just 88,000, marking the weakest job gain in two and a half years. The jobless rate edged up to 4.5 percent.