Consumers are Confident – Not Letting A Little Euro Disaster Bother Them

The good news of the day came in as a pretty impressive consumer confidence number. Even as we are worried about Korea, Oil spills, earthquakes and that little European region issue, the confidence came way over expectations and higher than last month.

This could be a good sign as consumers are still active in the U.S.   and will provide a basis for a potentially good PCE number out Thursday. Expectations are for a gain of 3.7%, an increase of .1% from the last report. Along with that report, Durable goods may show an increase as well, according to estimates.

We believe that this recent rout in the global markets will give way to a quick recovery rally once earnings start to come in this next quarter. After that, the aftershocks of the Eurozone’s slowdown may begin to temper analysts estimates and the mental negativity from the news will start to create concern for consumers and investors. That, could begin as early as the end of the 3rd quarter 2010.


Consumer Confidence Surges to its Highest Level Since March 2008
Consumer confidence rose 5.6 points to 63.3 in May, handily beating the consensus estimate of 58.3.

The Conference Board’s Consumer Confidence Index is at its highest point since March 2008.

Typically, consumer confidence can be predicted based upon changes in the unemployment rate, oil prices, stock prices, and media alerts. All four of those items weakened in May. Under normal circumstances, consumer confidence would have declined in conjunction.

However, nonfarm payrolls posted their highest gains since 2006. It seems that the strength in the labor sector outweighed the remaining correlated components and drove confidence higher.

Further evidence of the effect of nonfarm payrolls can be witnessed in the labor differential, which is the percent of respondents who thought jobs were plentiful minus those who thought jobs are hard to get. That differential increased from -40.1 to -39.0.

We anticipate a further strengthening in the confidence numbers as payrolls continue to rise.