A key measure of U.S. consumer confidence declined in May to its lowest level in six months as the outlook for inflation remained paramount in people’s minds despite the economy adding 339,000 jobs. The Conference Board reported that its Consumer Confidence Index fell 1.4 points, to 102.3, from an upwardly revised 103.7 in April.

“Consumer confidence declined in May as consumers’ view of current conditions became somewhat less upbeat while their expectations remained gloomy,” Ataman Ozyildirim, senior director, economics, at The Conference Board, stated in a press release. “Their assessment of current employment conditions saw the most significant deterioration, with the proportion of consumers reporting jobs are ‘plentiful’ falling 4 percentage points from 47.5% in April to 43.5% in May. Consumers also became more downbeat about future business conditions weighing on the expectations index. However, expectations for jobs and incomes over the next six months held relatively steady. While consumer confidence has fallen across all age and income categories over the past three months, May’s decline reflects a particularly notable worsening in the outlook among consumers over 55 years of age.

“Consumers’ inflation expectations remain elevated, but stable,” Ozyildirim added. “Consumers in May expected inflation to average 6.1% over the next 12 months — essentially unchanged from 6.2% in April, though down substantially from the peak of 7.9% reached last year. Nonetheless, consumers continued to view inflation as a major influence on their view of the U.S. economy. Plans to purchase homes in the next six months held steady in May at around 5.6% but were still notably down from 6 to 7% in Q4 2022. Meanwhile, plans to purchase autos and big-ticket appliances ticked up somewhat, compared to April.”

Meanwhile, a separate indicator of consumer sentiment also declined in May. The University of Michigan reported that its Consumer Sentiment Index fell to 59.2 from 63.5 in April.

“Consumer sentiment slid 7% amid worries about the path of the economy, erasing nearly half of the gains achieved after the all-time historic low from last June,” Joanne Hsu, director of the university’s Surveys of Consumers, stated in a press release. “This decline mirrors the 2011 debt-ceiling crisis, during which sentiment also plunged. [In May], sentiment fell severely for consumers in the West and those with middle incomes. The year-ahead economic outlook plummeted 17% from last month. Long-run expectations plunged by 13% as well, indicating that consumers are concerned that any recession to come may cause lasting pain. That said, consumer views over their personal finances are little changed from April, with stable income expectations supporting consumer spending for the time being.”

The U.S. Department of Labor reported that the unemployment rate was 3.7% in May, up from 3.4% in April. Professional and business services added 64,000 jobs, government employment increased by 56,000, health care added 52,000 jobs, and the leisure and hospitality segment added 48,000 jobs.

“American businesses are still aggressively hiring, likely to meet resilient consumer demand,” Sal Guatieri, a senior economist at BMO Capital Markets in Toronto, told Reuters. “However, the other areas of softness in this [jobs] report suggests that the labor market is losing steam. There’s likely enough pockets of softness in this report for the Fed to pass on raising rates at the next meeting.”

Jason Furman, who served as President Obama’s top economic adviser, told The Washington Post, “The increase in unemployment rate was about as large as we ever see the unemployment rate go up. I think that should make us nervous, but not panic, because … a lot of jobs were added in May.”

The federal government reported that average hourly earnings rose by 11 cents, to $33.44. During the 12-month period that ended in May, earnings have increased by 4.3%.

The U.S. Department of Commerce reported that consumer spending climbed by 0.8% in April, exceeding economists’ expectations. “Companies and consumers are in agreement that there are plenty of green shoots to like at the start of springtime, and right now the economy is miles and miles away from the cliffs of recession,” Christopher Rupkey, chief economist at FWDBonds in New York, told Reuters.

Inflation rose in April. The Personal Consumption Expenditures Price Index, excluding the volatile food and energy categories, rose 0.4% in April. The core PCE index rose 4.7% on a year-over-year basis in April. The PCE is the Federal Reserve’s preferred inflation gauge.

The Conference Board reported that its Leading Economic Index declined 0.6% in April, to 107.5, after a decline of 1.2% in March.

“The LEI for the U.S. declined for the 13th consecutive month in April, signaling a worsening economic outlook,” Justyna Zabinska-La Monica, The Conference Board’s senior manager, business cycle indicators, stated in a press release. “Weaknesses among underlying components were widespread — but less so than in March’s reading, which resulted in a smaller decline. Only stock prices and manufacturers’ new orders for capital and consumer goods improved in April. Importantly, the LEI continues to warn of an economic downturn this year. The Conference Board forecasts a contraction of economic activity starting in Q2 leading to a mild recession by mid-2023.”

The mood at the nation’s small businesses also darkened in April. The National Federation of Independent Business reported that its Small Business Optimism Index fell by 1.1 points, to 89. That drop marked the 16th consecutive month that the index has been below the 49-year average of 98.

“Optimism is not improving on Main Street as more owners struggle with finding qualified workers for their open positions,” NFIB chief economist Bill Dunkelberg stated in a press release. “Inflation remains a top concern for small businesses but is showing signs of easing.”

Twenty-four percent of member business owners said labor quality was their top business problem. Twenty-three percent said inflation was their most serious problem. A net 40% of owners, seasonally adjusted, reported raising pay in April.

Confidence among the nation’s home builders increased in May. The National Association of Home Builders reported that its NAHB/Wells Fargo Housing Market Index rose by five points, to 50, marking the fifth straight month of increases.

“New home construction is taking on an increased role in the marketplace because many homeowners with loans well below current mortgage rates are electing to stay put, and this is keeping the supply of existing homes at a very low level,” NAHB chairman Alicia Huey, a custom home builder and developer from Birmingham, Ala., stated in a press release. “While this is fueling cautious optimism among builders, they continue to face ongoing challenges to meet a growing demand for new construction. These include shortages of transformers and other building materials, and tightening credit conditions for residential real estate development and construction brought on by the actions of the Federal Reserve to raise interest rates.”

NAHB chief economist Robert Dietz added: “Lack of existing inventory continues to drive buyers to new construction. In March, 33% of homes listed for sale were new homes in various stages of construction. That share from 2000-2019 was a 12.7% average. With limited available housing inventory, new construction will continue to be a significant part of prospective buyers’ searches in the quarters ahead.”

All three of the HMI’s component indexes rose in May. The index that gauges current sales conditions rose five points, to 56; the component that charts sales expectations in the next six months rose seven points, to 57; and the index that measures the traffic of prospective buyers climbed two points, to 33. Any number above 50 indicates that more builders view conditions as good rather than poor.

The Commerce Department reported that sales of new homes rose 4.1% in April, to a seasonally adjusted annual rate of 683,000. It was the highest level since March 2022. “A lack of existing inventory supported sales of newly built, single-family homes in April,” the NAHB’s Huey said. “Even more encouraging, we are seeing sales growth in the more affordable price ranges of $200,000 to $400,000.”

The NAHB’s Dietz added: “April saw an increase in new home sales as buyers sought new construction even as builders struggle to keep up with demand because of a shortage of distribution transformers and skilled construction workers. Sales for 2023 thus far are still down 9.7% on a year-to-date basis due to elevated interest rates, and sales may weaken in the months ahead, given the recent rise in interest rates.”

The median sale price for a new home fell to $420,800 in April and was down 8% from the same month a year earlier.

Existing-home sales declined in April. The National Association of Realtors reported that sales fell 3.4%, to a seasonally adjusted annual rate of 4.28 million.

“Home sales are bouncing back and forth but remain above recent cyclical lows,” NAR chief economist Lawrence Yun stated in a press release. “The combination of job gains, limited inventory and fluctuating mortgage rates over the last several months have created an environment of push-pull housing demand.”

The NAR added that the median existing-home price was $388,800, a decline of 1.7% from the same month a year earlier. “Roughly half of the country is experiencing price gains,” Yun said. “Even in markets with lower prices, primarily the expensive West region, multiple-offer situations have returned in the spring buying season following the calmer winter market. Distressed and forced property sales are virtually nonexistent.”

This article was originally published in the July 2023 issue.