Consumer Confidence: Not optimistic, but less pessimistic

Wells Fargo Research Team Wells Fargo

Summary

After five straight monthly declines, consumer confidence rebounded in May amid a cease-fire in the trade war. Even after the bounce, confidence remains near the low-end of the recent range and further improvement may depend upon continued deescalation of trade hostilities.

Confidence rises amid suspension of trade hostilities

There is some disagreement about the scope for tariffs to negatively impact consumer spending. The camp convinced that tariffs present only a modest headwind can take heart in the hard data such as the April retail sales report, which showed a third straight monthly increase, if only a mild one (+0.1%). Unclear at this point is the degree to which April retail spending still reflects efforts by some households to get a purchase in before the tariffs make an impact on retail pricing and whether that theme carried into May.

Today's report is a reversal of trend. For five straight months, consumer confidence had been heading lower. In May, consumer confidence rebounded a sharp 12.3 points to 98.0. The Present Situation Index rose a touch to 135.9, the highest reading in three months. Yet, the Expectations Index has jumped a stark 17.4 points to 72.8, highlighting increased consumer optimism about the outlook. This rebound is a welcome step in the right direction, but like the deal with China it may prove only a temporary reprieve until we get clearer long-term clarity on trade policy.

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Wells Fargo Research Team

Wells Fargo

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