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Consumers grew more confident in May as employment improved and gasoline prices retreated, according to the Conference Board's latest survey. At the same time, there was further evidence of slowing manufacturing activity -- this time in the Chicago region.

The Conference Board's consumer confidence index rose to 102.2 in May from 97.5 in April, ending three straight months of declines. Economists on average expected the index to dip to 96.0.

The rebound in confidence was partly led by the survey's expectations index, which is influenced by the price of gasoline. Gasoline prices fell roughly 6% during May after soaring during the first four months of the year. It also reflected gains in the present situation index, driven by an improved employment situation. Employment rebounded in April after a weak showing in March.

Economists expect that the improved employment outlook points to better-than-expected payroll growth in May. The May employment report, due Friday, is expected to show the economy added 180,000 jobs in the month, compared with 274,000 in April.

Meanwhile, it was a different picture of the economy that emerged from the Chicago region. The Chicago Purchasing Managers' index dropped steeply from 65.6 in April to 54.1 in May -- its lowest level in two years. Economists expected the index to drop to 62. A reading below 50 would indicate contraction in the sector.

The report confirms the weak readings from the Philadelphia and New York regions. Economists now expect the national manufacturing survey from the Institute for Supply Management to dip to 52.2 in May from 53.3 in April.

So far, this year's economic growth appears to be decelerating smoothly. Spring fears of a sharp slowdown abated. Many, including

Federal Reserve

officials, are now describing a March slowdown as a transitory oil-induced "soft patch."

But with the slowdown in manufacturing, which eventually may take its toll on employment, much will depend on consumer confidence holding up. Consumption makes up two-thirds of GDP.

"If the expectations gain

in the consumer confidence index can be held, the gas price hit on consumers' spending will be brief, offsetting industrial softness," says Ian Shepherdson, chief U.S. economist at High Frequency Economics.

In the meantime, if the uptick in employment is maintained and consumer confidence holds up, the implications for monetary policy are clear. "What more could the Fed want?" asks Joel Naroff, president of Naroff Economic Advisors. "Not much. So expect a rate hike on June 30th."