Consumer Confidence in May Rose Third Month in a Row

As fears about labor market disappear, expectations rise to pre-recession levels

Consumer confidence rose for the third month in a row in May, still showing some weakness, but expectations about future conditions are at their highest levels since before the recession, the Conference Board reported Tuesday, May 25.

The consumer confidence index came in at 63.3 in May, up from 57.7 in April, while the expectations index rose to 85.3 from 77.4 and the present situation index rose to 30.2 from 28.2.

"Consumer confidence posted its third consecutive monthly gain, and although still weak by historical levels, appears to be gaining some traction," said Lynn Franco, director of the Conference Board Consumer Research Center, in a statement. "Consumers' apprehension about current business conditions and the job market continues to slowly dissipate. Consumers' expectations, on the other hand, have increased sharply over the past three months, propelling the expectations index to pre-recession levels."

In August 2007, before the recession hit, expectations stood at 89.2. Franco credited growing optimism about business and labor market conditions for consumers' upbeat expectations, but noted that the income outlook remains pessimistic.

The May consumer data were well above the consensus 58.5, but that confidence is unlikely to last as the stock market weakens on worries about Europe and Asia, according to Ian Shepherdson, chief U.S. economist for High Frequency Economics Ltd., in Valhalla, New York.

"This is the second straight significant upside surprise from this survey, and it is again driven mostly by a sharp rise in the expectations index," Shepherdson said in an analyst note. "This puts the index at its highest level since August 2007. That of course is when markets first jammed up, and on the third anniversary of the start of the chaos the markets are staging something of a repeat performance now. The expectations index is hugely sensitive to stock prices so we do not expect the gain reported today to persist."

The Conference Board's monthly Consumer Confidence Survey is based on a sample of 5,000 U.S. households.

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