US May Confidence Stops Slide; New Homes Up

The Conference Board’s US consumer confidence index rose slightly to a reading of 86.6 in May from a downward revised 85.7 reading in April, stopping the slide at two months, but leaving the index well below the recent peak in February.

Analysts had expected the May index to rise to 88.3 from the originally reported 86.9 reading in April.

The assessment of current conditions declined in the month, while expectations for the future moved slightly higher, as some states moved to reopen businesses.

Lynn Franco, the Conference Board’s senior director of Economic Indicators, said, “(w)hile the decline in confidence appears to have stopped for the moment, the uneven path to recovery and potential second wave are likely to keep a cloud of uncertainty hanging over consumers’ heads.”

The present situation reading fell to 71.1 from 73.0, but the expectations reading ticked up modestly to 96.9 from 94.3.

Survey respondents were less optimistic about current business conditions and only slightly more optimistic about current employment opportunities in May.

The percentage of respondents describing business conditions as “bad” rose to 52.1% from 45.3% in April.

Those reporting jobs as “plentiful” fell to 17.4% from 18.8%, but those reporting that they are “hard to get” fell even more sharply to 27.8% from 34.5%. As a result, the gap between the two jobs measures, a closely watched indicator of employment conditions, narrowed to -10.4 in May from -15.7 in April. By comparison, the gap stood at +29.5 in March and +33.5 a year ago.

On the upside, respondents looking for business conditions to improve over the next six months rose to 43.3% from 39.8%, compared with 21.4% who expect conditions to worsen.

However, respondents see the job market roughly unchanged from the current situation. Those expecting more jobs in the coming months fell to 39.3% from 41.2% in April, while those looking for fewer jobs fell more modestly to 20.2% from 21.2%. Those looking for the same number of jobs rose to 40.5% from 37.6%.

In other data released on Tuesday, the Philadelphia non-manufacturing index rose to a reading of -68.6 in May from a record low -96.4 in April. The Markit flash services reading released last week, the only other non-manufacturing data released so far for May, indicated a modest improvement as well. Both readings still indicate significant contraction and are well below their pre-COVID highs.

On the manufacturing side, the Dallas Fed’s index improved modestly in May, rising to -49.2 from -74.0. The data are in line with the Empire, Philadelphia, and Markit flash readings from last week that do suggest some improvement, but continued contraction. Other regional data will be released this week before the ISM measure on Monday.

The Case-Shiller and FHFA home price measures were both up modestly in March at the very start of the crisis, and were sharply above their levels from a year earlier.

New home sales rose by 0.6% to a 623,000 annual rate, with increases up in three of the four regions of the country. One reason for the increase is a sharp 5.2% drop in sales prices, putting them 8.6% below their year-ago level. Home supply also declined in the month, though the month’s supply remained elevated.

This contrasted with the existing home sales data released last week that showed a sharp decline in sales and an uptick in the prices.

The difference is due to motivation. New homes are sold by builders, who are extremely motivated to sell a house to remain in business. As a result, new home sales prices have been falling sharply to motivate buyers.

Conversely, current homeowners appear to be reluctant to change homes in this uncertain environment. Additionally, concerns about potential buyers touring homes has kept some sellers on the sidelines until they feel physically and financially safer. As a result, inventories of existing homes available for resale are well below their year-ago level, while prices remain relatively high.

Kevin Kastner

Julie Ros

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