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Two consumer confidence surveys that reached opposite conclusions reinforce how closely Americans are following the Trump administration’s trade policies.
The Conference Board Consumer Confidence Index, released Tuesday after the long Memorial Day weekend, was up 12.3 points in May, to 98.0 — the first improvement following five months of decline.
Preliminary results from the University of Michigan Index of Consumer Sentiment, released May 16, had shown consumer confidence slipping this month and approaching an all-time low.
TAKE THE INMAN INTEL INDEX SURVEY FOR MAY
The difference? The University of Michigan survey was fielded between April 22 and May 13, so many responses were gathered before the Trump administration announced a pause on some tariffs on goods from China on May 12.
The cutoff date for the Conference Board survey’s preliminary results was May 19 — and about half of the responses were collected after the May 12 announcement of a pause on some tariffs on imports from China.
“The rebound was already visible before the May 12 US-China trade deal, but gained momentum afterwards,” Conference Board Senior Economist Stephanie Guichard said in a statement.
Stephanie Guichard
“Consumers were less pessimistic about business conditions and job availability over the next six months and regained optimism about future income prospects,” Guichard said. “Consumers’ assessments of the present situation also improved. However, while consumers were more positive about current business conditions than last month, their appraisal of current job availability weakened for the fifth consecutive month.”
Nearly one in five consumers (18.6 percent) said jobs were “hard to get” in May, up from 17.5 percent in April. The Conference Board’s Expectations Index, which is based on consumers’ six-month outlook for income, business and labor market conditions, was up 17.4 points to 72.8.
That’s still below the threshold of 80 which historically has been a warning sign that a recession lies ahead.
But the latest numbers from the Conference Board make the “very downbeat” headline numbers from the most recent University of Michigan survey “looking far too negative,” Pantheon Macroeconomics Senior U.S. Economist Oliver Allen said in a note to clients Tuesday.
The final data for the University of Michigan survey for May is set to be released Friday, and “will reveal the extent to which the May 12 pause on some China tariffs leads consumers to update their expectations,” survey director Joanne Hsu said when preliminary results were released.
Oliver Allen
Allen suspects that a divergence in the Conference Board and University of Michigan indexes in recent months is likely due to bias “introduced by the sharp divergence in expectations for the economy among Republicans and Democrats.”
The Conference Board’s Expectations Index is consistent with spending growth slowing to 1 percent in the first quarter, Allen said.
“We think clearer signs of labor market weakness will eventually prompt the Fed to resume easing policy, but it will probably take up to the September meeting for the Fed to feel it has enough information to act,” Allen said.
Echoing recent complaints by President Trump, Federal Housing Finance Agency Director Bill Pulte on Monday urged Federal Reserve Chairman Jerome Powell to lower interest rates, claiming on X that “the housing market would be in much better shape” if he did.
The Fed’s adjustments to short-term interest rates don’t always impact long-term yields for mortgage-backed securities and government bonds, however.
Mortgage rates driven by investor demand
Mortgage rates are largely determined by investor demand for mortgage-backed securities (MBS), the ultimate source of funding for most home loans.
As the Fed cut short-term interest rates by a full percentage point at the end of last year, mortgage rates moved in the other direction as economic data showed inflation moving away from the Federal Reserve’s 2 percent target.
Before the Fed began bringing the short-term federal funds rate down in September, rates on 30-year fixed-rate mortgages were descending toward 6 percent. But by the end of the year, they were flirting with 7 percent again.
Investors are also keeping a close eye on the Trump administration’s trade policies, which in the short term could reignite inflation and in the long run could spur a recession, economists say.
Major stock indexes soared and 10-year Treasury yields eased Tuesday after Trump announced that 50 percent tariffs slated to be imposed on goods from the European Union will be delayed until July 9.
The CME FedWatch tool, which tracks futures markets to gauge the odds of future Fed moves, shows investors don’t expect the central bank will lower rates when policymakers meet next month, and that the odds of a July rate cut are just one in four.
Fed policymakers left short-term rates untouched after wrapping up their last meeting on May 7, saying they need time to assess the impacts of the Trump administration’s “substantial policy changes” in areas including tariffs, immigration, taxation and regulation.
Trump lashed out at Powell the next day on Truth Social, calling him a “fool” and claiming “almost all costs” are down and that there is “virtually no inflation.”
The latest reading of the Fed’s preferred measure of inflation, the Personal Consumption Expenditures price index, showed a big drop in annual inflation from February to March, from 2.7 percent to 2.3 percent
Inflation nearing Fed’s 2% target
The core PCE index, which excludes volatile food and energy prices, also dipped to 2.6 percent, down from 3 percent in February. Trump suggested on Truth Social on April 17 that he would like to fire Powell.
In a May 22 order, the Supreme Court said it would not intervene to stop the Trump administration from removing members of the National Labor Relations Board and the Merit Systems Protection Board without cause while challenges to those moves are being litigated in a lower court.
But the order made clear that the constitutionality of for-cause removal protections for members of the Federal Reserve’s Board of Governors or other members of the Federal Open Market Committee are not in dispute.
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