by Consumer confidence was up significantly in May, while the April Pending Home Sales Index declined 6.3% from March
WASHINGTON — Two recent economic reports offer contrasting views of economic activity heading into the late spring and early summer months.
First the good news. The Consumer Confidence Board reported on May 27 that the Consumer Confidence Index rose 12.3 points in May, to 98, from 85.7 in April.
Meanwhile, the Present Situation Index, which reflects consumers’ views of current business and labor market conditions, rose 4.8 points to 135.9, while the Expectations Index based on consumers’ short-term outlook for overall business and labor market conditions rose 17.4 points to 72.8.
Of course, tariffs remained top of mind in these assessments as about half the responses were collected following the May 12 announcement that the Trump administration was putting a 90-day pause on China tariffs that lowered the rate from 145% to 30%.
Thus, while many surveyed were still concerned about the issue of tariffs and the potential impact on prices, others were hopeful the pause would give way to cooler heads in a way that supports continued economic activity.
Of course, inflation remains an ongoing concern for consumers, given the looming threat of tariffs. Still, some consumers also referenced easing inflation and lower gas prices as factors that were defining their views of the economy overall.
In May, consumers also noted that their spending plans for homes, cars and vacations increased, while plans to purchase big-ticket items such as appliances and electronics also were up.
This is potentially good news for furniture retailers that sell some of these items in addition to furniture as it could spur a rise in foot traffic for those stores. Some saw some of this traffic during Memorial Day weekend, and the hope is that plans for increased spending continue.
The May survey also indicated that consumers plan to purchase more services in the coming months, with dining out topping the list, followed by purchases of streaming services. Other major areas of planned spending included movies, theater, live entertainment and sporting events, the survey noted.
However, the survey also noted that consumers were more concerned about the affordability of products and services rather than job security. For example, nearly half of consumers said “they were concerned about not being able to buy the things they need or want, compared to less than a quarter worried about losing their jobs.”
Another question added to the survey asked consumers if they planned to change their spending and financial behavior. The responses were as follows:
+ 36.7% said they have put money aside for future spending.
+ 26.6% of those surveyed said they took money out of savings to pay for goods and services.
+ 26% said they were postponing major purchases.
+ Consumers in households making more than $125,000 were more likely to save money, while less wealthy households said they had to dig into savings or postponed purchases.
+ 19% said they made advanced purchases ahead of tariffs, although the share was higher at 26% in wealthier households.
The Conference Board described the rebound in confidence in May as “broad-based across all age groups and all income groups. It was also shared across all political affiliations, with the strongest improvements among Republicans.”
“Consumer confidence improved in May after five consecutive months of decline,” said Stephanie Guichard, senior economist, Global Indicators at The Conference Board. “The rebound was already visible before the May 12 U.S.-China trade deal but gained momentum afterwards. The monthly improvement was largely driven by consumer expectations as all three components of the Expectations Index — business conditions, employment prospects and future income — rose from their April lows. Consumers were less pessimistic about business conditions and job availability over the next six months and regained optimism about future income prospects. 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.”
This brings us to the housing market. The National Realtors Association published the April results of its Pending Home Sales Index report that showed a 2.6% drop from April 2024, with pending home sales rising in the Midwest, but falling in the Northeast, South and West. The index dropped 6.3% from March, with pending home sales falling in all four regions.
The PHSI, which fell to 71.3 in April, is a forward-looking indicator of home sales based on contract signings. An index of 100 is equal to the level of contract activity in 2001.
By region, the activity was as follows:
+ In the Northeast, the index fell 3% from April to 62.3. It declined .6% from March.
+ In the Midwest, the index was 73.5 in April, up 2.2% from April 2024, but down 5% from March.
+ In the South, it declined 3% from April 2024 to 85.9, which was also down 7.7% from March.
+ In the West, the index totaled 53.3 in April, down 6.5% from April 2024 and down 8.9% from March.
“At this critical stage of the housing market, it is all about mortgage rates,” said NAR Chief Economist Lawrence Yun. “Despite an increase in housing inventory, we are not seeing higher home sales. Lower mortgage rates are essential to bring home buyers back into the housing market.”
Thus, they are also critical to furniture sales, which are largely spurred by home sales. As of May 30, several sources said a 30-year rate was hovering just below 6.9%. Industry observers believe the rate needs to fall below 6% to spur any meaningful activity in the housing industry.
Fortunately, furniture sales have been holding fairly strong, with year-over-year increases reported each month since this past September. And with some retailers reporting positive Memorial Day sales activity, the hope is that the trend continues for the month of May and beyond.
Of course, furniture will continue to compete with other areas of spending, including the all-consuming drain of dining out and other forms of entertainment.
But as Yun indicates, all eyes will be on interest rates, which will impact both existing home sales and new home construction.
We believe they also will be on tariffs as consumers whose budgets are stretched to the limit might not be able to bear the brunt of rising prices for furniture and other goods for the home. Let’s hope for a successful resolution in each area and one that is based on the economic realities of what the consumer can actually bear.
