In a recent development marking a temporary truce in the trade war, the economic and labor market outlook has shown signs of improvement, leading to a significant surge in consumer confidence in the United States surpassing expectations in May, marking the largest monthly increase in four years.
According to the latest survey released by the Conference Board on Tuesday, the Consumer Confidence Index in the United States rose by 12.3 points to reach 98 this month. This marks the first monthly increase since November, exceeding the economist’s expectation of 88, as per data from FactSet.
The data released on Tuesday indicated a significant increase in a measure of consumers’ expectations for the next six months, marking the largest surge since 2011. Additionally, an index measuring the current situation also showed an uptick. The improvement in consumer confidence was observed across all age groups, income brackets, and political affiliations, with the confidence among Republicans showing a particularly noticeable increase.
Consumers are more optimistic about the business environment, job market, and their own income prospects. As a result, more consumers expressed intentions to purchase cars, homes, large appliances, and plan vacations within the next six months.
However, consumers’ views on the current job market are more complex. While more respondents indicated ample employment opportunities in May, there were also more respondents expressing difficulty in finding jobs in the current job market. The gap between these perspectives is a closely watched indicator by economists to gauge the employment market, narrowing for the fifth consecutive month.
The survey had a cutoff date of May 19, just before the temporary truce in the U.S.-China trade war was announced along with tariff reductions. A statement revealed that around half of the survey responses were collected after the agreement was reached on May 12.
Over the past few months, sentiments towards the economy have been influenced by Trump’s tariff policies. Last month, consumer confidence plummeted to its lowest level since the early days of the COVID-19 pandemic.
However, with the gradual progress made by the Trump administration in trade negotiations with other countries, consumer confidence received a boost in May.
Stephanie Guichard, a senior economist at the Conference Board, stated in a press release, “The rebound was already evident before the U.S.-China trade agreement on May 12, but strengthened afterward. The monthly improvement is primarily driven by consumer expectations, with all three components of the expectations index – business conditions, employment outlook, and future income – rebounding from lows in April.”
On May 8, the United States and the United Kingdom announced a trade agreement aimed at reducing tariffs on certain goods, marking the first such agreement reached by the Trump administration. Trump hailed it as a groundbreaking trade deal.
On May 12, following the first trade talks in Geneva, the U.S. and China agreed to temporarily lower tariffs, easing the trade war tensions and initiating negotiations for a broader trade agreement within three months.
Additionally, President Trump announced on May 25 that he agreed to delay the implementation of a 50% tariff on the EU to July 9. Previously, Trump had announced tariffs on the EU starting from June 1.
(Reference: Bloomberg)