Another early indicator of the likely economic fallout from COVID-19 is consumer sentiment, and incoming survey data show that the coronavirus is indeed top of mind for many Americans. For example, a new Gallup poll revealed that 61 percent of U.S. adults believe it is “very likely” the COVID-19 outbreak will cause an economic recession in the United States, and 18 percent feel their household will struggle financially as a result. More generally, headline confidence gauges from the University of Michigan and The Conference Board fell sharply in March to multi-year lows, but the bulk of the weakness was due to deteriorating optimism about the future, whereas consumers’ assessments of current economic conditions actually held up rather well. This disparity is likely in part due to the timing of when the surveys were conducted and therefore means that further declines in April would not be surprising.
Optimism among those directly affected by the coronavirus and related containment efforts has of course been hit the hardest, but the elevated level of uncertainty now looming over the economy is still weighing on sentiment for everyone else. One of the reasons to monitor consumer confidence is because it can help predict inflection points in broader household consumption, by far the largest component of U.S. gross domestic product (GDP). However, the coronavirus situation is unique because even if optimism was still at record highs, the forced store closures and shelter-in-place orders across the country make it likely that some spending will be lost forever. Anyone who had planned on dining at a restaurant, for instance, does not delay eating until the lockdown ends or eat out twice as much once the crisis is over to “make up” for it. In other areas, though, consumer spending will for the most part remain steady (housing, utilities) or even pick up (online commerce, grocery stores), and larger purchases (homes, cars) in many cases will simply be put on hold until after the lockdown is lifted. None of this means that the economic downturn in America is not severe or likely to worsen, especially after last week’s initial jobless claims report. However, if the pandemic can soon be contained and a second wave this fall is avoided, then the rebound after the economy “re-opens” could be stronger and faster than the constant gloom and doom in the media would suggest.
Sources: UoM, The Conference Board, Gallup