Updated: 26-May-09 10:31 ET

May Consumer Confidence

Updated: 26-May-09 10:31 ET

Highlights

• The Conference Board's Consumer Confidence Index for May increased sharply to 54.9 from 40.8 in April.  The May number is the highest since last September, but still trails the 58.1 reading seen a year ago.
• The index for May showed that consumers are feeling much better about the outlook.  The Expectations Index, which drove the overall reading for May, surged to 72.3 from 51.0 in April and is well ahead of the 47.3 reading from a year ago.
• The Present Situations Index moved up to 28.9 from 25.5 and is still well below the year-ago reading of 74.2.
• Looking six months out, a larger number of respondents than in April feel business conditions will be better (23.1 vs. 15.7), that more jobs will be available (20.0 vs. 14.2) and that income will increase (10.2 vs. 8.3).  Strikingly, fewer respondents have plans to buy a home (2.3 vs. 2.6).  Also, it is believed the inflation average 12 months hence will be 5.6% versus 5.9% in April.

Key Factors

• Personal consumption expenditures are the hard data, and it is the increases/decreases in disposable personal income that drive spending more so than confidence.  Still, the uptick in confidence plays a part in spending decisions.
  
  One should remain open to the idea that there will be some volatility in this series until there is more confidence in the employment situation and the housing market.

Big Picture

• Consumer sentiment indices get way too much attention.  The simple fact is that sentiment does not correlate with consumer spending and thus has little predictive value.  Consumer spending correlates more closely with income.  Sentiment tends to reflect well known factors such as unemployment rates and gas prices more than it predicts future spending patterns.