Bart Van Ark, The Conference Board Chief Economist, joined Yahoo Finance's Myles Udland, Seana Smith, Rick Newman, and Akiko Fujita to discuss May's consumer confidence number and his outlook for the U.S. economy.

Video Transcript

SEANA SMITH: Now the latest reading on consumer confidence is out today, and it was a bit of a surprise. A good surprise, actually, consumer confidence rising in May as the economy began to reopen. So for more on this, we want to bring in Bart Van Ark, the chief economist at The Conference Board. And Bart, following two months of pretty rapid declines, the freefall in confidence has finally stopped in May. Has the widespread impact of the virus at this point been factored in, do you think?

BART VAN ARK: Yeah, I think there's probably some of this. I think it's exactly what you're saying. We have seen two months of such huge declines, so at some point, it just had to stabilize. It has picked up a little bit, but it just went up from 85.7 to 86.6. So we really call this stabilizing.

But when you really look under the hood, most is still declining. I mean, people are still more pessimistic about current business conditions and current employment conditions. They do expect more jobs, but it hasn't really improved much compared to what I saw last month. The only thing that has improved is actually I think about the business conditions. And that has to do with the reopening of the economy that are seeing around them.

But then there's one little piece there, and that is that income expectations. And those income expectations continue to go down. And that is really a worrying going forward.

MYLES UDLAND: Now Bart, something that did show up a little bit in this report is inflation expectations ticking up slightly. I saw some economists say that's probably because of what's happening at the grocery store. We know that policymakers are perhaps too focused on what happens with inflation. But I mean, is that a measure inside of this data that you think bears close watching in the next couple of months?

BART VAN ARK: Yeah, I mean, you know, most of the time, we don't really look at it all that much because with all due respect for all the consumers, when it comes to their assessment of the consumer price index, they're very biased because I tend to need to look at what they-- you know, what I see happening in the grocery store. And in particular, you look at the prices are going up. That concerns them. And what we are, of course, seeing, as you just said, is that there are some products, think, for example, meat and some other grocery products that are going up in price.

But there are also empty shelves, and I understand that that means that prices go up. And when I go out and check on the internet, I see the prices for toilet paper are, of course, out of the window. So, you know, there are concern. But if, you know, if you pull it all together, then we do, of course, there are other parts of the CPI, including, you know, gas prices and things like that that actually are very low, and therefore, the overall impact of face patients probably limited. But you're right. It has picked up a little.

RICK NEWMAN: Hey, Bart, Rick Newman here. I wonder if you have any sort of, like, desperation index or any way of telling the portion of people who are really financially fragile and potentially in a situation that's getting worse. I mean, so many people are out of work.

People have gotten the stimulus check, but there may not be another after that that may have helped cover the bills for a month or two. But maybe there's no more money yet coming in. I mean, is there any way to tell if people are just starting to run out of money?

BART VAN ARK: Well, yes, but that, of course, what we hear and observe, it's interesting when you look at the data here. The age categories are interesting. We do actually see, you know, a fair amount of improvement, particular under the over 35. It's the below 35s that actually are still more negative in terms of the overall consumer sentiment.

And then when we're looking at income categories, we actually see that some of the middle income categories, for example, your $35,000 to $50,000, lots of people there, they actually see a pretty big improvement. At the lower end, it doesn't look as strong. And at the higher end also, it doesn't look as strong.

So it's a very varied picture. Also, it's a very varied picture across states. I mean, we check this across states, which for the larger states, we see a very significant uptick in consumer confidence in places like Texas, for example. But then there are other places where, you know, it continues to be down, like Illinois and Pennsylvania and Michigan, for example. So this is a report with a lot of mixed messages in there for the consumer.

AKIKO FUJITA: You just broke down by age group, you know, what we're seeing in income expectations. But I'm curious what you're seeing, you know, regionally. Are there-- is it a particular area, particular sector where you're seeing the expectations especially decline? And I guess, the knock on impact of that, you know, how is that changing the consumer behavior?

BART VAN ARK: Yeah, so there are really three categories, right? There are some states where you see a significant upbeat consumer. Texas is by far the most important. It already had pretty high consumer confidence. And it actually now moved again back into the double digits. So that was really a significant improvement.

Then you have places like California and New York that obviously have been hard hit. They're much, much lower, but they're beginning to see an improvement. And then there are states where, you know, it's sort of kind of still weakening because some of the lockdowns are still quite significant. And I mentioned places like Michigan and Pennsylvania that are important states in that respect.

SEANA SMITH: Hey, Bart, what's the biggest worry going forward? Is it the potential second wave that we could see in the fall or some kind of next winter? I mean, how is that playing into your expectations then moving forward?

BART VAN ARK: Well, we're asking the consumer for the next six months. And that factors in most of the summer, of course. So I think, you know, what I read here is that consumers really and I think about the next six months, I think it's probably going to be better rather than worse.

I don't think it really answers the question of what might happen in the fall. I'm sure that consumers will have concerns about it. I mean, they've heard enough about this. So we have to wait and see. I think what's very important in the next few months to see is whether, you know, the nature of new outbreaks are going to be very highly concentrated and very localized or whether indeed we'll see larger outbreaks. If that's the case, then I worry a lot about consumer sentiment.

But I think for the moment, I think that's the bottom line of this report today. Consumers are expecting that, at least for the time being, the worst is behind us and that there is a way upwards. But again, this is a stabilized index. There's not a lot of good news coming out of it. The only thing is that people do see the economy reopening up, and that gives them some optimism.

SEANA SMITH: All right, Bart Van Ark, chief economist at The Conference Board, thanks so much for joining us today.

BART VAN ARK: Pleasure.