Consumer Confidence Surprises the Street
By Cindy Christ

Consumer confidence spiked sharply in May, showing a series of interest rate hikes hasn't halted consumer spending.

On Tuesday, The Conference Board reported its closely watched Consumer Confidence Index surged this month after falling in February and March and remaining flat in April.

The index now stands at 144.4, up from a revised 137.7 last month and just a fraction below an all-time high of 144.7 posted in January.

The consensus forecast on Wall Street for Consumer Confidence in May was a drop to 136.1.

The Conference Board said the big gain in confidence is fueled by record low unemployment, which hit a 30-year low of 3.9 percent in April.

"There are job shortages in all parts of the country and better pay too, across all jobs and ethnic groups," said Conference Board economist Delos Smith in an interview with CNBC financial television.

Since June 1999, the Federal Open Market Committee has hiked interest rates six times in a bid to slow down consumer spending, which accounts for about two-thirds of the U.S. economy.

But despite a nine-year high in the cost of money and wild stock market gyrations, consumers remain optimistic about the future, with plans for major purchases still intact.

"All buying plans are up. Consumers have great confidence in the Federal Reserve and the chairman's ability to make everything right. That's why people aren't concerned about what the Fed is doing," Smith said.

According to the report, more consumers saw their incomes increasing than decreasing in May and more said they planned to buy big-ticket items like homes, cars and appliances.

"This is a nightmare for the Federal Reserve," Delos said.

The report showed the percentage of people planning to buy a home within six months rose to 3.6 percent from 3.2 percent.

The amount looking to purchase a home appliance in May also jumped to 32 percent from 29.7 percent in April. The proportion expecting to buy a car climbed to 9.6 percent from 8.3 percent.

In addition, a brighter outlook for business conditions accompanied this month's unexpected rise in confidence.

The percentage of consumers calling business "good" edged up to 44.7 percent in May from 44.5 percent in April. The share of consumers expecting business conditions to improve over the next six months also jumped to 18.8 percent, up from 15.5 percent.

"With unemployment at a 30-year low and short-term Conference Board forecast projecting favorable labor market conditions, confidence is expected to remain strong throughout this summer," said Lynn Franco, director of The Conference Board's Consumer Research Center.