Will other surveys match the rebound in consumer confidence?

Bottom line

As concern that President Trump’s tariffs will jack up prices likely caused consumers to spend proactively in March and April, many economists assume retail sales will fall off a cliff in May. Indeed, sales did soar 5.2% year-over-year (y/y) over this year’s “Marpril” period—even more than they did in 2024 (3.0%) and in 2023 (1.9%). But yesterday’s surprisingly robust Conference Board Consumer Confidence Index reading for May suggests that is not a given.

What is ‘Marpril’ and why do we care? We examine this two-month period because it represents the third most important retail sales season of the year. The other two are Back-to-School (June through September) and, of course, Christmas (October through January). Taken together, these three have been positively correlated 80-90% over the past 30 years, and that’s significant as consumer spending accounts for 70% of US gross domestic product (GDP). Back-to-School spending rose a soft 2.2% y/y in 2024, the weakest result in a decade and below the 3.0% y/y growth reading in 2023. In contrast, holiday spending in 2024 grew 3.9%, much higher than 2023’s 2.7%, which was the weakest in five years.

Is April portending a slowdown? Many pundits have made tariffs and tax legislation a boogeyman for the weakness in the soft data. But we believe fundamentals are still driving the bus, and consumers will spend even if they front-ran some purchases because of anxiety about the trade war and the “One Big Beautiful Bill.” Retail-sales control results exclude food services, gas stations, auto dealers and building materials stores, and directly feed into quarterly GDP calculations. They were positive in March and February, with healthy gains of 0.5% and 0.8% month-over-month (m/m), respectively. While control results dipped 0.2% m/m in April (consensus at a gain of 0.3%), analyzing the components shows relative strength.

Sector details in April belie the perceived weakness

• Eating & drinking establishments, a proxy for services, rose a respectable 1.2% m/m in April; March rose 3.0%.
• Building materials sales rose a decent 0.8% m/m in April after a strong 2.9% m/m gain in March, largely attributable to the end of brutal winter weather.
• E-commerce rose for the third consecutive month, up a modest 0.2% m/m.
• Gasoline prices declined for the third consecutive month, down 0.5% in April after a 2.5% decline in March, as crude oil (West Texas Intermediate, or WTI) prices have decreased 25% over the past four months. This fall is contributing to the recent decline in inflation.
• Auto sales, which account for nearly 20% of overall retail sales, slipped 0.1% m/m in April, as consumers bought vehicles in March (at an impressive growth rate of 5.5% m/m) to avoid the potentially higher prices that tariffs might impose. Similarly in March, both auto unit and dollar sales respectively soared 11% to 17.8 million and 24% m/m.

Savings rate rising The personal savings rate in the US has averaged 7.4% over the past 50 years. In the wake of the federal government’s overly generous fiscal stimulus during the pandemic, it spiked to 32.0% in April 2020 and 25.9% in March 2021. It then declined sharply to a 17-year low of 2.0% in June 2022, which fueled outsized retail spending during 2021 and 2022.

Since then, however, the savings rate has nearly doubled, reaching 3.9% this March. That suggests consumers, particularly those at the low end of the wealth and income spectrum, have been spending less. Moreover, pandemic excess savings have been exhausted. For instance, credit card usage, which soared 17.4% in 2022, plunged to 3.7% growth in the first quarter, and delinquencies have more than doubled from 1.5% in the third quarter of 2021 to 3.1% in the fourth quarter of 2024.

Yellow warning lights? We see green Inflation has declined over the last several months, and the labor market remains in decent shape. But some investors are worried about how the Trump administration’s trade negotiations will unfold. If tariff discussions go off the rails, inflation and unemployment could rise, economic growth slow and the Federal Reserve dither. Consequently, low-end consumers seemed to be cautious until there is more clarity. Ditto the tax legislation in Congress.

Will other soft data also rebound? The Conference Board’s Consumer Confidence Index had plunged from a 16-month high of 112.8 last November to a nearly five-year low of 85.7 in April. But it surprisingly rebounded in May to 98.0 (consensus was 87.1). Similarly, its expectations metric plummeted from a three-year high of 93.7 in November 2024 to a 14-year low of 55.4 in April but surged to 72.8 in May. We think other confidence surveys that are deeply negative now could soon follow suit: 

• The Leading Economic Indicators (LEI) Index fell by a much weaker-than-expected 1.0% m/m in April 2025 and has now declined for five months in a row to a nine-year low of 99.4. Seven of the 10 components were negative last month, led down by average consumer expectations.
• The NAHB Housing Market Index (HMI), a measure of homebuilder confidence, plunged from a nine-month high of 47 in January to a 19-month low of 34 in May. 
• The NFIB Small Business Optimism Index plummeted from a six-year high of 105.1 in December to a six-month low of 95.8 in April.
• The University of Michigan Consumer Sentiment Index dove to a three-year low of 50.8 in May 2025, down from 52.2 in April and 74.0 last December. It’s the second lowest reading on record and not far off the all-time low of 50 in June 2022. Moreover, its one-year inflation expectations count now sits at a 44-year high of 7.3%, up from 6.5% in April and 2.6% last November, due to tariff concerns.

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