Americans’ feelings about the economy deteriorated in May amid concerns about job prospects, but remained relatively strong even as high inflation bites, according to a survey released Tuesday.
Amid the fastest increase in US consumer prices in more than four decades, made worse by the war in Ukraine, consumer confidence dipped slightly after a modest increase in April, falling to 106.4 from 108.6, according to The Conference Board’s monthly survey.
Consumers flush with savings and government support money have been a key driver of the recovery of the world’s largest economy, spending freely on big-ticket purchases like homes, cars and appliances.
But supply chain snarls, made worse by Covid-19 lockdowns in China, meant demand has outstripped supply, and that dynamic has fueled inflation.
Feelings about the present situation dropped for the second month, falling more than three points to 149.6, caused by the deterioration in views on the labor market, with an increasing share of respondents saying jobs are “hard to get,” according to the report.
Expectations for six months ahead retreated slightly to 77.5 after gaining in the prior month.
Lynn Franco, the institution’s senior director of economic indicators, noted that the readings are still relatively high despite the declines.
“Overall, the Present Situation Index remains at strong levels, suggesting growth did not contract further in Q2,” Franco said in a statement, referring to the current April-June quarter.
“That said, with the Expectations Index weakening further, consumers also do not foresee the economy picking up steam in the months ahead. They do expect labor market conditions to remain relatively strong, which should continue to support confidence in the short run.”
The Federal Reserve has launched an aggressive cycle of interest rate increases to tamp down inflation by cooling demand, which Franco said “pose continued downside risks to consumer spending this year.”
The survey also measures consumers’ spending plans in the next six months, and shows a slowdown in intentions to purchase high-dollar items like homes and cars.
“Vacation plans have also softened due to rising prices. Indeed, inflation remains top of mind for consumers,” Franco said.
Ian Shepherdson of Pantheon Economics noted that households still have a stockpile of cash and “So far, they have been willing to dip into these savings despite reporting that they feel less positive. It’s not called retail therapy for nothing, but we just don’t know how long it will continue.”