Consumer confidence rose last week, even as figures were released showing that retail sales fell during May. For bank rates — and the economy — that’s not an even trade-off.
Money market rates, savings account rates, and CD rates remained pretty much unchanged, probably because they don’t have much further to fall. Bank rates need tangible evidence of economic progress before they can get up off the mat.
On that score, you might think that a lift in consumer confidence was good news, but the consumer confidence index often gets more attention than it deserves. Confidence matters in the short run, but fundamentals like jobs, incomes, and sales are what create sustainable moves in the economy.
In terms of fundamentals, the report that retail sales lost 1.2% (seasonally adjusted) in May is a setback, but not an altogether surprising one. May’s decline more than wiped out the 0.6% gain in April.
While the drop in retail sales surprised forecasters, the reason it shouldn’t be seen as a shock is that there has not yet been enough progress in the employment market. Sales growth can be powered in two ways — by income growth, or by the willingness of consumers to spend a greater share of their incomes, which often involves borrowing. Until employment picks up, we can’t expect to see much in the way of income growth, and with households already strapped by debt and with lending standards having been toughened, a rise in borrowing isn’t in the cards either.
So, confidence rose and sales dropped. Since the former is perception and the latter is reality, that’s a net loss for bank rates.
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