Consumer Confidence in May 2017

Written by Peter Wright

The source of this data is the Conference Board with analysis by Steel Market Update. Please see the end of this piece for an explanation of the indicator and for the official news release.

Consumer Confidence decreased 1.5 points in May, falling to 117.9 but the last four months have each been better than at any time since 2001. The three month moving average (3MMA) increased for the 12th consecutive month to a value of 120.7 in May. Consumers are feeling better about the current economic environment and their prospects for the coming months. Confidence is up 26.3 points from a year earlier. The low point for consumer confidence last year was May with a value of 92.4. Consumer confidence is the driver of consumer spending which is the largest component of GDP and which ultimately drives a large portion of steel consumption.

Included at the end of this write up is the official news release from the Conference Board.

In May the 3MMA of the composite increased from 120.1 to 120.7 (Figure 1).

We prefer to smooth the data with a moving average because of monthly volatility which in the case of consumer confidence has been quite extreme since the beginning of last year. The composite index is made up of two sub-indexes. These are the consumer’s view of the present situation and his/her expectations for the future. Both are now above their eight year trend line and expectations have surged well past their trend line in 2017 (Figure 1). The historical pattern of the 3MMA of the composite, the view of the present situation and expectations are shown in Figure 2.

All three measures are now higher than they were at the pre-recession peak of 2007. The 3MMA of the composite made no progress from early 2015 through mid-2016 as improvements in the consumer’s view of the present situation were negated y a decline in expectations. Since mid-2016 both components of the index have surged. Comparing May 2017 with May 2016 (y/y) the 3MMA of the composite was up by 26.3, the present situation was up by 26.6 and expectations were up by 26.2 (Table 1).

All sub-indices in Table 1 were green in both April and May. The consumer confidence report includes encouraging data on job availability and wage expectations. It reports on the proportion of people who find that jobs are hard to get and those who believe jobs are plentiful and it measures those who expect a wage increase or a decrease. Since August 2011 both of the job availability components have steadily improved. Expectations for wage increases have not been as consistent but in this report the differential between those expecting an increase and those expecting a decrease in the last four months have been the best since before the recession. Plans to buy a house were negative in January through March but became positive in April and May. Plans to buy a car have been positive y/y every month since September last year. Plans to buy an appliance have been positive every month since February.

SMU Comment: Consumer confidence continues to be on an excellent track for both the view of the present situation and expectations. The employment sub-indexes are good which will drive personal consumption, the largest component of GDP. This is turn will have a positive effect on steel consumption. Our take on the May result is somewhat different from the official news release included below here because we consider only three month averages and the Conference Board considers only monthly numbers.

The official news release reads as follows:

The Conference Board Consumer Confidence Index Declined in May

The Conference Board Consumer Confidence Index®, which had decreased in April, declined slightly in May. The Index now stands at 117.9 (1985=100), down from 119.4 in April. The Present Situation Index increased marginally from 140.3 to 140.7, while the Expectations Index declined from 105.4 last month to 102.6 in May. The cutoff date for the preliminary results was May 18.

“Consumer confidence decreased slightly in May, following a moderate decline in April,” said Lynn Franco, Director of Economic Indicators at The Conference Board. “However, consumers’ assessment of present-day conditions held steady, suggesting little change in overall economic conditions. Looking ahead, consumers were somewhat less upbeat than in April, but overall remain optimistic that the economy will continue expanding into the summer months.”

Consumers’ appraisal of current conditions held steady in May. Those saying business conditions are “good” edged down from 30.8 percent to 29.4 percent, but those saying business conditions are “bad” was unchanged at 13.7 percent. Consumers’ assessment of the labor market also remained positive. Those stating jobs are “plentiful” declined marginally from 30.3 percent to 29.9 percent, however, those claiming jobs are “hard to get” decreased from 19.4 percent to 18.2 percent.

Consumers were less optimistic about the short-term outlook in May. The percentage of consumers expecting business conditions to improve over the next six months decreased from 25.1 percent to 21.3 percent, however, those expecting business conditions to worsen declined marginally from 10.4 percent to 10.1 percent.

Consumers’ outlook for the labor market was mixed. The proportion expecting more jobs in the months ahead declined from 21.9 percent to 18.6 percent, but those anticipating fewer jobs decreased from 13.8 percent to 12.0 percent. The percentage of consumers expecting their incomes to increase edged up from 18.7 percent to 19.2 percent, but the proportion expecting a decrease also rose, from 7.6 percent to 8.7 percent.

About The Conference Board

The Conference Board is a global, independent business membership and research association working in the public interest. Our mission is unique: To provide the world’s leading organizations with the practical knowledge they need to improve their performance and better serve society. The monthly Consumer Confidence Survey®, based on a probability-design random sample, is conducted for The Conference Board by Nielsen, a leading global provider of information and analytics around what consumers buy and watch. The index is based on 1985 = 100. The composite value of consumer confidence combines the view of the present situation and of expectations for the next six months. The Conference Board is a non-advocacy, not-for-profit entity holding 501 (c) (3) tax-exempt status in the United States.

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