Consumers show more confidence in May

NEW YORK — Consumer confidence showed signs of coming to life in May, as consumers responded to an improved economic outlook for the next six months.

As compiled by The Conference Board from its monthly survey of 5,000 consumer households, the consumer confidence index rose to 115.5 in May, up more than 5 percent from the 109.9 recorded for the index in April. Much of the increase traces to a nearly eight-point hike in the expectations index, the component number that measures consumers' feelings about the future. The latter figure was 86.8 in the May survey.

In addition, more consumers said they expected economic conditions to improve in the May survey, 16.8 percent vs. 14.1 percent in the April survey. Also, 13.8 percent of consumers predicted more jobs in the economy in the next six months, up from 12.3 percent in the previous month.

"Latest findings report rising confidence about job prospects over the next six months, but reveal growing concern about the current job market," said Lynn Franco, director of The Conference Board's consumer research center. The percentage of consumers rating current jobs as "hard to get" increased from 14.2 percent in April to 14.7 percent last month. The present situation index did rise slightly, from 156.0 to 158.6 from April to May.

Summing up, Franco said, "Nowhere … are there indications that consumers will curtail their spending, which points to continued economic growth."

Terming the May reading "a nice rebound" for consumer confidence, analyst Anthony Karydakis of Banc One Capital Markets added that the increase "strongly suggests that the series has bottomed."

Karydakis also warned that the index remains almost 30 points below its year-ago level. "Now the key issue is how consistent and quick the turnaround in the series will prove to be in the next several months," he said.

Taking a long-term view, David Orr, chief economist for First Union Economics Group, said, "Despite the very sharp drop in the current cycle, the level of confidence remains near or above the peak level of confidence in past cycles."

Assessing the fact that the expectations index improved to a greater extent than the present situations number, Orr explained it by noting "the contrast between the current concern with jobs vs. the perception that combining tax cuts with Fed rate cuts will generate a better job market by the end of the year and into 2002."

Consumer spending is still considered crucial to the economy's health as this year continues.

Analyst Peter Kretzmer of Bank of America Corp. expects consumer spending growth to slow, in response to lag effects from high-energy costs and erratic behavior by the stock markets. "We expect the weaker pace of consumption growth to unfold during the middle quarters of this year, with signs of a spending pickup visible by the end of [the third quarter of] 2001," he said.