By Lucia Mutikani
WASHINGTON U.S. consumer confidence slipped in May as Americans' assessment of the labor market softened, but more households planned to purchase motor vehicles and other big-ticket items over the next six months, which could support consumer spending.
The ebb in confidence reported by the Conference Board on Tuesday was concentrated among consumers aged 55 years and older, as well as households with annual incomes in the $50,000 to $99,000 range. Consumers expected inflation to stabilize at higher levels over the next year.
"Consumer confidence levels are in a holding pattern even if they are saying it isn't quite as easy as it was to get a new job," said Christopher Rupkey, chief economist at FWDBONDS in New York. "Older Americans were less confident in the future perhaps with talk of budget cuts and the eventual need to rein in entitlement programs like Social Security and Medicare."
The Conference Board's consumer confidence index slipped to 102.3 this month from an upwardly revised 103.7 in April. Economists polled by Reuters had expected the index to fall to 99 from the previously reported reading of 101.3.
The survey places more emphasis on the labor market. A fight to raise the government's borrowing cap weighed on the University of Michigan's consumer sentiment measure this month.
President Joe Biden and Republican House Speaker Kevin McCarthy on Sunday signed off on an agreement to temporarily suspend the debt ceiling and cap some federal spending in order to prevent a U.S. debt default.
Consumers were less optimistic on the labor market, with the share viewing jobs as "plentiful" falling and the proportion of those saying jobs were "hard to get" rising.
The survey's so-called labor market differential, derived from data on respondents' views on whether jobs are plentiful or hard to get, fell to a still-high 31.0 from 36.9 in April, suggesting the labor market was loosening up.
This measure correlates to the unemployment rate from the U.S. Labor Department. The jobless rate fell back to a 53-year low of 3.4% in April. The government is scheduled to publish its closely watched employment report for May on Friday
"Job growth is slowing," said Jeffrey Roach, chief economist at LPL Financial in North Carolina. "Investors should expect Friday's job report to reveal emerging cracks in the labor market."
U.S. stocks were trading higher. The dollar fell against a basket of currencies. U.S. Treasury prices rose.
INFLATION EXPECTATIONS ELEVATED
Consumers' 12-month inflation expectations dipped to 6.1% from 6.2% last month. Inflation readings have been persistently high, increasing the probability of the Federal Reserve raising interest rates again next month.
Financial markets saw a more than 60% chance of the Fed raising its policy rate by another 25 basis points at its June 13-14 meeting, according to CME Group's FedWatch Tool.
Minutes of the Fed's May 2-3 policy meeting, which were published last week, showed policymakers "generally agreed" the need for further rate hikes "had become less certain."
Despite the lingering concerns about inflation, consumers are not showing signs of drastically pulling back on spending.
The share of consumers planning to buy motor vehicles over the next six months increased compared to April. More consumers intended to buy big-ticket items, including refrigerators, washing machines and television sets.
That aligns with economists' expectations that consumer spending will support growth this quarter after it accelerated at its fastest pace in nearly two years in the first quarter.
There was a slight increase in the share of consumers planning to buy a house over the next six months. The rise in demand could run against a perennial shortage of houses on the market, and potentially drive up prices.
Single-family home prices increased solidly on a monthly basis in March, surveys showed on Tuesday. The S&P CoreLogic Case-Shiller national home price index, covering all nine U.S. census divisions, climbed 0.4% in March after adjusting for seasonal fluctuations. That followed a 0.3% rise in February.
The housing market has taken the biggest hit from the Fed's fastest monetary policy tightening campaign since the 1980s.
The average rate on the popular 30-year fixed mortgage has in recent weeks risen to the upper end of its 6.09%-6.73% range this year, according to data from mortgage finance agency Freddie Mac. It peaked at 7.03% in late 2022.
The inventory of existing homes remains 44% below pre-pandemic levels, according to data from the National Association of Realtors, which also this month reported price rises in roughly half of the country, multiple offers and many homes being sold above list price.
A third report from the Federal Housing Finance Agency showed monthly house prices rising 0.6% in March after an increase of 0.7% in February. Prices increased 3.6% in the 12 months through March after an advance of 4.2% in February.
"As inventory remains a challenge in this market, so too will affordability, rocked by stubbornly high prices that aren't looking to move drastically any time soon," said Nicole Bachaud, senior economist at Zillow in Seattle.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci)
