Consumer confidence on the rise

By Hibah Yousuf, staff reporter


NEW YORK (CNNMoney.com) -- A key measure of consumer confidence climbed for a third straight month in May, a research group said Tuesday, with the outlook for the next few months spiking to pre-recession levels.

The Conference Board, a New York-based research group, said its Consumer Confidence Index rose to 63.3 in May, the highest level since March 2008, when it stood at 65.9. The index climbed from a downwardly revised 57.7 in April.

Economists were expecting the index to increase to 58.3, according to a Briefing.com consensus survey. The figure, which is based on a survey of 5,000 U.S. households, is closely watched because consumer spending makes up two-thirds of the nation's economic activity.

The Conference Board said the survey cutoff date was May 18, meaning that the data took into account such events as the "flash crash" of May 6 and the ongoing European debt crisis. It would not have included some of the events that have roiled markets in recent days, such as the tensions in Korea.

"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, in a statement. "Consumers apprehension about current business conditions and the job market continues to dissipate.

The overall index has been recovering slowly since reaching a record low of 25.3 in February 2009, but was still far from a reading above 90, which indicates the economy is stable, and 100 or above, which indicates strong growth.

The expectation index, which measures consumers' outlook over the next few months, rose to 85.3, the highest level since August 2007, when it came in at 89.2.

"The improvement has been fueled primarily by growing optimism about business and labor market conditions." Franco said.

The percentage of Americans expecting business conditions to pick up increased to 23.5% from 19.7% last month, and fewer expected circumstances to worsen.

The percentage of those expecting the job market to improve also edged higher to 20.4% from 17.7% the previous month. Last month, employers added the most jobs since March 2006, and economists expect payrolls to increase by 500,000 jobs this month, which would be the most since September 1997.

Those expecting a rise in their incomes improved modestly to 11.3% from 10.5%.

"The Consumer Confidence Index tends to reflect consumer impressions of the direction of the jobs market," said Jim Baird, partner and chief investment strategist for Plante Moran Financial Advisors, in a research note. "The recent marked improvement in the pace of job creation is clearly lifting spirits."

But as spooked investors remain fixated on debt problems in Europe and growing tensions in Korea, Baird said the market's recent turmoil "will undoubtedly weigh" on consumer sentiment.

"We do not expect discretionary spending to return to pre-recession levels for some time," Baird said. "Nonetheless, should we see continued improvement in the jobs market as anticipated in the months ahead, improving personal income should be supportive of spending growth." To top of page

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