That confidence, however, is not translating to the housing market
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A strong labor market caused consumer confidence to rise in May, according to a survey by the Conference Board, a member-driven economic think tank.
This suggests that the economy remains on solid ground in spite of indications that a slowdown was imminent, and escalating tensions in the trade negotiations between the U.S. and China.
Although the survey closed mid-May and economists say the results may not have fully captured sentiments surrounding the latest impacts of the trade war, it doesn’t seem to be making a big impact on the public.
The Conference Board said its index of consumer attitudes increased 4.9 points to a reading of 134.1 this month, climbing up to levels seen last November when the index was hovering near 18-year highs.
The survey’s expectations index, based on consumers’ short-term outlook for income, business and labor market conditions, increased to 106.6 this month from 102.7 in April.
The Conference Board survey’s labor market differential, derived from data on respondents’ views on whether jobs are plentiful or hard to get, increased to 36.3% up from 33.2% in April. That measure closely correlates to the unemployment rate of 3.6% in the Labor Department’s employment report, the lowest level in almost 50 years.
Still, those indicators of an economic slowdown persist. Industrial production, durable goods orders, retail and home sales fell in April, suggesting the economy lost considerable momentum early in Q2 after getting a lift from exports and an accumulation of unsold goods in warehouses in Q1.
The Atlanta Federal Reserve is forecasting gross domestic product increasing at a 1.3% annualized rate in Q2. The economy grew at a 3.2% pace from January to March. Growth is mostly slowing as last year’s stimulus from the Trump administration’s tax cuts and spending increases fades.
Consumers anticipated inflation would remain muted over the next year. The survey’s one-year inflation expectations fell to 4.4% in May from 4.6% in April.
Inflation has been benign despite the tight labor market, prompting calls from President Donald Trump for the Federal Reserve to cut interest rates. The U.S. central bank recently suspended its three-year interest rate hiking campaign and revealed no indications of altering the stance on its monetary policy.
Other data has shown a further moderation in house price inflation. This could help support the struggling housing market, although the low inventory of affordable, entry-level housing continues to be a problem as demand remains high due to low interest rates.
“A variety of different measures of housing activity have been soft in recent months despite the recent decline in mortgage rates and if affordability issues are weighing on the housing market, house prices could continue to soften moving forward,” said Daniel Silver, an economist at JPMorgan in New York.
The S&P CoreLogic Case-Shiller composite index of home prices in 20 metropolitan areas increased 2.7% in the 12 months to March after rising 3.0 percent the prior month. In another report the Federal Housing Finance Agency (FHFA) said its house price index rose a seasonally adjusted 4.9% in March from a year ago. That followed a 5.1% gain in February.
