After reaching a nine month high in April, consumer confidence took an unexpected slide during May, as elevated commodity costs affected spending.
The Thompson Reuters/University of Michigan Preliminary Sentiment Index dropped from an April reading of 84.1 to 81.8 in May, as rising food and fuel prices evidently offset the marked employment sector gains seen over the past two months. The dropoff was particularly surprising after the April index appeared to represent a return to normalcy following months of harsh winter weather that stifled consumer spending. Bloomberg reported that surveyed economists had projected a median reading of 84.5, which would have represented a moderate improvement.
Construction rates – one of the areas most hamstrung by the prolonged first quarter freeze – picked up in April, prompting hope that home sales activity might be rejuvenated. But still tight standards for mortgage credit approval and the looming inventory issues have prevented the spring purchase acceleration many economists were hoping to see. The rate of housing starts – usually a solid indicator for future supply and prospective sales – does offer reason for optimism, having increased by 13.2 percent through April, according to data from the Commerce Department.
Most analysts simply believe that the hesitance from consumers is a function of the winter’s lingering effects, and that with more sustained labor expansion and wage gains, confidence and activity will pick back up.
“We’re seeing some payback from that big jump that we saw in April,” Terry Sheehan, a New Jersey based economic analyst, told Bloomberg. “The labor market is improving, the economy is doing better in the second quarter, and confidence should start to build back slowly.”
When consumer sentiment returns to consistent health, as expected, businesses of all sizes could experience greater demand. In the interest of efficiently fielding those new opportunities, smaller and mid-sized firms should explore the equipment leasing options offered by companies such as National Funding.