WASHINGTON - Confidence in the U.S. economy unexpectedly increased in May, to its second-highest level ever, suggesting that higher interest rates 'will not curtail consumer spending any time soon.
The Conference Board's consumer confidence index rose to 144.4 for the month, and was revised to 137.7 for April, from 136.9. The index gauging consumer expectations for the next six months increased to 118.7 in May from 109.7 a month earlier.
More consumers in May than in April said they planned to purchase houses, cars, and appliances. "Stock market fluctuations and interest rate hikes are really not having a negative impact" because consumers are optimistic about their job prospects, said Lynn Franco, head of the Conference Board's survey.
The rise in the index suggests that the increase in the Federal Reserve's overnight bank lending rate to a nine-year high has yet to blunt confidence, nor has a four-week slide in stocks.
That is a key ingredient in consumer spending, which has kept the record economic expansion rolling along. Spending, which represents two-thirds of total economic output, rose in the first quarter at the fastest pace in almost 15 years.
"The consumer hasn't cracked yet, and the consumer must crack for the Fed's work to be done," said Ken Mayland, president of Clear View Economics LLC in Cleveland, who said U.S. central bankers will probably raise the overnight bank rate another half percentage point in June.
The confidence index, calculated since 1967, reached a record high 144.7 in January. Analysts expected the New York-based research group's confidence index to fall to 136.1 in May.
The government's report also showed the strength in labor markets. A record 64.9 percent of the U.S. population held jobs in April.
The share of respondents in the May confidence survey who saw jobs as plentiful rose to 52.8%, from 52.4% a month ago. The share seeing jobs as hard to get fell to 11.4%, from 12.1%. The share of people who plan within six months to buy a home rose to 3.6%, from 3.2%. Also, 32% of the May survey respondents said they planned to buy a home appliance, up from 29.7% the previous month. The number planning to buy cars rose to 9.6%, from 8.3%.
The index measuring current economic conditions rose to 183.1 in May, from 179.8 a month earlier.
The Fed's campaign of raising interest rates has pushed home mortgage and other borrowing costs higher, and that ultimately should cause consumers to slow their spending and the economy to shift into a lower gear.
Already banks are reporting they have become more cautious in their lending because of the cloudy economic outlook, according to a Fed survey of major banks. However, no change was reported in lending standards for consumers, the survey showed.