Consumer Confidence Is Rising Despite Trade War Fears

May marked another solid month for consumer confidence.

The Conference Board’s index now stands at 134.1 for the month, compared with the 129.2 recorded in April. In March, the economic indicator slumped to 124.1 on the heels of an up-and-down stock market, the repercussions of the government shutdown and a disappointing jobs report.

This month, however, the nonprofit research group saw figures that were back to levels reported last fall, when the index was hovering near 18-year highs. It comes amid escalating trade tensions between the United States and China, which has contributed to volatility on the stock market and concerns over a global economic slowdown.

“Consumers expect the economy to continue growing at a solid pace in the short term,” senior director of economic indicators Lynn Franco said in a statement. “Despite weak retail sales in April, these high levels of confidence suggest no significant pullback in consumer spending in the months ahead.”

The numbers are a positive sign for retailers that have been wary of the trade war’s impact on shoppers. On May 10, Washington imposed a rise in tariffs from 10% to 25% on $200 billion worth of Chinese imports, leading Beijing to retaliate with new levies of 5% to 25% on $60 billion of U.S. goods.

President Donald Trump also threatened another set of duties on $300 billion worth of Chinese imports, including most consumer goods. If imposed, retailers including Walmart and Macy’s have already indicated that they would likely have to pass on costs to consumers, which could then discourage spending in other categories.

Despite these worries, the organization’s Present Situation index — based on consumers’ assessment of current business and labor market conditions — rose from 169 last month to 175.2 in May, driven primarily by employment gains. In April, the U.S. economy added 263,000 jobs, well ahead of economists’ forecasts of 190,000. (The hike in hiring also pushed unemployment down to 3.6%, a low last seen in 1969.)

The Expectations Index — which focuses on consumers’ short-term outlook for business and labor market conditions — climbed from 102.7 to 106.6 this month. An improved 21.9% (versus 19.4% last month) of Americans expected better business conditions in a half-year from now while 8.4% (compared with 9%) expressed pessimism with the short-term outlook.

Retailers are also facing challenging times, with major players including Kohl’s, Nordstrom and JCPenney reporting disappointing first-quarter earnings last week as consumers continue to take their business to competing e-commerce and direct-to-consumer platforms.

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