Consumer Confidence Jumps After Months of Decline. What Does That Mean for Recession Fears?

Americans are feeling more optimistic about the economy and labor market than they have in months.

The U.S. consumer confidence index, a key recession indicator, improved in May after five months of decline, though the numbers indicate there still may be a potential recession ahead, according to a report released Tuesday. 

The Conference Board found that its consumer confidence index increased by more than 12 points this month after reaching a five-year low in April. The expectations index—which measures Americans’ short-term outlook on market conditions—also surged, but still fell below the threshold of 80, a marker of a potential recession.

Here’s what you should know about the increase in consumer confidence.

Why did consumer confidence improve?

The agreement reached by the U.S. and China earlier in May to significantly reduce their tariffs against each other for 90 days appears to have eased consumer concerns about the economy.

“The rebound was already visible before the May 12 US-China trade deal but gained momentum afterwards,” said Stephanie Guichard, the Conference Board’s senior economist for global indicators. 

Tuesday’s report found that tariffs are still top of mind for many consumers, with some survey respondents voicing concerns about increased prices. Many large retailers have walked back from their commitment to not elevate prices for consumers after reporting slips in their first quarter earnings.

The Trump Administration announced on May 12 that the U.S. and China would each reduce their tariffs on the other country by 115% for the 90-day period, meaning that U.S. tariffs on Chinese goods would drop to 30% and Chinese tariffs on American exports would come down to 10%. The deal marked the second major pullback in Trump’s tariffs, after he previously paused sweeping tariffs against most of the world’s countries in April. Allies and other trading partners are fighting to ease some delayed import taxes as negotiations with the European Union remain ongoing ahead of the July 9 deadline.

Despite ongoing concerns over tariffs’ potential impact, some consumers were hopeful about the prospect of potential trade deals being reached. And consumer confidence overall increased across all age and income groups and political affiliations.

What concerns remain?

The economic attitudes of consumers of all ages and income levels are still lower than they were six months ago, and the expectations index remains below the key recession indicator threshold after the decline of previous months.

While the report found that consumer sentiment ticked up regarding various areas of the economy, from the present situation to the short-term prospects for employment and future income, expectations for job availability also weakened for the fifth month in a row. 

The U.S. unemployment rate stands at 4.2%, which is on par with its average over the last year, according to the U.S. Department of Labor’s latest report.