Consumer Confidence Hits 5-Year High

Americans’ estimations of the economy are improving despite gridlock in Washington.

In this April 15, 2013, picture, a woman walks past a J. Crew retail store in Baltimore.
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Americans are more confident about the economy than they've been in more than five years, according to two index readings released Tuesday. In both cases, the measures of economic strength are buoyed not by how Americans think the economy looks now, but by where they see it going.

The Conference Board reported that its closely watched consumer confidence index improved this month, from 69 in April to 76.2 in May. That's the strongest reading since February 2008, when the index reading came in at 76.4 (on a scale on which 1985 levels are pegged at 100).

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In addition, polling firm Gallup reported Tuesday that its Economic Confidence Index registered a reading of minus 6 last week, barely changed from the prior week's minus 5, the highest reading since Gallup started tracking the measure in 2008 (the Gallup index is measured on a scale of minus 100 to 100).

Both indexes combine Americans' estimations of current economic conditions and in which direction they see the nation's economy headed. The data show Americans to be far more optimistic than they are satisfied about the economy. The Conference Board, for example, reports that its present situation index is at only 66.7, but its expectations index is far higher, at 82.4.

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The economic recovery has continued to improve strongly alongside (or, perhaps, in spite of) constant gridlock and policy uncertainty from Washington. The headline unemployment rate has fallen by 0.4 percentage points since January, to 7.5 percent in May, and home prices grew at an annual rate of more than 10 percent in March, according to the latest Case-Shiller data.

"Back-to-back monthly gains suggest that consumer confidence is on the mend and may be regaining the traction it lost due to the fiscal cliff, payroll-tax hike and sequester," said Lynn Franco, director of economic indicators at The Conference Board, in a statement accompanying the release.

Those policy fights took a heavy toll on Americans' moods. The fight over the "fiscal cliff" of tax hikes and spending cuts sent the Conference Board index plummeting eight points in January, to 58.4, and sequestration also contributed to a six-point decline in March.

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The index measures are closely watched because of what they may signal about consumer demand. If Americans are confident, that confidence may go hand in hand with greater spending and therefore greater economic growth.

The worst may be over as far as Americans' confidence goes, but readings are nowhere near pre-recession levels. In fatter times, such as the mid-2000s, the Conference Board index posted readings above 100. That mirrors broader measures of the U.S. economy – just as a confidence reading of 76 has plenty of room for improvement, so does an unemployment rate of 7.5 percent.

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