Dive Brief:

• A buoyant stock market and favorable borrowing costs last month muted a signal that slower economic growth is to come, the Conference Board said Thursday, reporting a gain in its Leading Economic Index for a second consecutive month.
• The rise of the Standard & Poor’s 500 Stock index toward a record high and a narrowing spread between the 10-year Treasury note and the federal funds rate pushed up the LEI by 0.1% in May following a 0.2% gain in April, the Conference Board said.
• The improved outlook was “fueled entirely by positive contributions from financial components, especially stock prices and the interest rate spread,” Justyna Zabinska-La Monica, the Conference Board’s senior manager for business cycle indicators, said in a statement.

Dive Insight:

Despite the back-to-back monthly gains in the LEI, the six- and 12-month growth rates in the index suggest that the economy is slowing, Zabinska-La Monica said.

“Consumers are feeling squeezed because everyday costs — especially gas and energy — are rising faster than their incomes, leaving many households with less money available for things like travel, restaurants, entertainment, and shopping,” she said.

Consumer confidence ticked down in May as the rising price of gasoline and other goods compelled two out three households to trim spending, the Conference Board found in a survey.

The board’s Consumer Confidence Index dipped 0.7 points to 93.1, eroded by a gloomier view among younger and older consumers. Optimism rose among consumers aged 35 to 54.

In a similar survey this month, consumer sentiment rose 9% after a four-month slump as the average price of gasoline declined from highs it reached earlier in the war with Iran, according to the University of Michigan.

The sentiment among consumers brightened from a record low regardless of age, education level or political affiliation, Joanne Hsu, the university’s director of consumer surveys, said in a statement.

Still, sentiment is 13% below the pre-war level in January and 19% below a year ago, largely because of inflation, she said.

The economy shows favorable trends beyond financial markets, Zabinska-La Monica said.

“The good news is that businesses are spending heavily on AI, data centers and new technology, helping to keep the economy growing, while consumers pull back spending,” she said.

An agreement between the U.S. and Iran to open the Strait of Hormuz and negotiate an end to their conflict has pushed down gas prices, blunting a major cause for inflation.

The average price for a gallon of regular gasoline has fallen to $3.99 from $4.52 a month ago, according to AAA.

Also, in a sign of resilience among consumers, retail sales increased more than forecast last month, rising 0.9% compared with 0.4% in April, the Commerce Department said Wednesday.

The economy will likely grow 1.8% this year, slowing from 2.1% in 2025, according to a Conference Board forecast.