Core Summary

  • The Conference Board said Thursday that strong stock market performance and favorable borrowing costs weakened signals of an economic slowdown last month, with its Leading Economic Index (LEI) rising for the second consecutive month.
  • The S&P 500 approaching record highs, along with a narrowing spread between the 10-year U.S. Treasury yield and the federal funds rate, drove the LEI up 0.1% month-over-month in May, following a 0.2% increase in April.
  • Justina Zabinska-LaMonica, senior manager of the organization's business cycle indicators, said in a statement that the improved outlook was "entirely driven by the positive contributions from the financial components, especially stock prices and interest rate spreads."

In-Depth Analysis

Despite the LEI rising for two consecutive months, the index's six-month and twelve-month growth rates still indicate that the economy is slowing, Zabinska-LaMonica said.

"Consumers feel financially strained because everyday costs—especially gasoline and energy—are rising faster than their income growth, leaving many households with less money to spend on travel, dining, entertainment, and shopping," she said.

A Conference Board survey found that consumer confidence declined in May, as rising gasoline and other commodity prices forced two-thirds of households to cut back on spending.

The organization's Consumer Confidence Index fell 0.7 points to 93.1, with pessimism rising among younger and older consumers, while optimism among those aged 35 to 54 strengthened.

In a similar survey this month, the University of Michigan's Consumer Sentiment Index rose 9% after four consecutive months of decline, as average gasoline prices retreated from the highs reached during the early stages of the Iran war.

Joanne Hsu, director of the university's Surveys of Consumers, said in a statement that consumer sentiment rebounded from historic lows, across all ages, education levels, and political affiliations.

She noted that despite this, sentiment remains 13% below pre-war levels from January and 19% below a year ago, primarily due to inflation.

Zabinska-LaMonica said that beyond financial markets, the economy is also showing favorable trends.

"The good news is that businesses are investing heavily in artificial intelligence, data centers, and new technologies, which helps keep economic growth going, while consumers are cutting back on spending," she said.

An agreement between the U.S. and Iran to open the Strait of Hormuz and negotiate an end to the conflict has lowered gasoline prices, alleviating a major driver of inflation.

According to AAA data, the average price of regular gasoline has fallen to $3.99 per gallon from $4.52 a month ago.

Additionally, as a sign of consumer resilience, data released by the U.S. Commerce Department on Wednesday showed retail sales rose more than expected last month, up 0.9% month-over-month, following a 0.4% increase in April.

According to the Conference Board's forecast, the economy is expected to grow 1.8% this year, slowing from 2.1% in 2025.