– March 31, 2020

The Consumer Confidence Index from The Conference Board fell sharply in March, dropping 12.6 points to 120.0, the lowest level since July 2017. The index is constructed so that it equals 100 in 1985 (see top chart).

The two components had declines for the month as well. The present-situation component fell to 167.7 from 169.3, about in line with the July 2018 reading of 166.1. The two-year average for this index stands at 168.8 (see top chart again).

The expectations component lost 19.9 points, taking it to 88.2 from 108.1 in the prior month. Expectations now sit at the lowest level since October 2016 (see top chart). According to the report, “Consumer confidence declined sharply in March due to a deterioration in the short-term outlook. The Present Situation Index remained relatively strong, reflective of an economy that was on solid footing, and prior to the recent surge in unemployment claims. However, the intensification of COVID-19 and extreme volatility in the financial markets have increased uncertainty about the outlook for the economy and jobs. March’s decline in confidence is more in line with a severe contraction – rather than a temporary shock – and further declines are sure to follow.”

The Conference Board results are in line with the final results from the University of Michigan. The final March results from the University of Michigan Surveys of Consumers show overall consumer sentiment fell sharply from the final February result. Consumer sentiment decreased to 89.1 in March, down from 101.0 in February, a 11.8 percent decline (see bottom chart). From a year ago, the index is down 9.5 percent. Consumer sentiment has been fairly volatile over the past year or so but has been holding at generally favorable levels. Given the unprecedented surge in layoffs recently, that is unlikely to continue.

The two sub-indexes also posted sharp declines in March. First, the current-economic-conditions index dropped to 103.7 from 114.8 in February (see bottom chart). That is a 9.7 percent fall for the month and a 8.5 percent decrease from March 2019.

The second sub-index — that of consumer expectations, one of the AIER leading indicators — sank 12.4 points or 13.5 percent for the month and is 10.2 percent below the prior year. The 12.4-point decline was one of just eight declines of more than 10 points since 1995. The index came in at 79.7 in March versus 92.1 in February. That is the lowest level since October 2016 (see bottom chart).

According to the report, “Stabilizing confidence at its month’s end level will be difficult given surging unemployment and falling household incomes. The extent of additional declines in April will depend on the success in curtailing the spread of the virus and how quickly households receive funds to relieve their financial hardships. Mitigating the negative impacts on health and finances may curb rising pessimism, but it will not produce optimism.”  Furthermore, the report stated, “To avoid an extended recession, economic policies must quickly adapt to a new era that will reorder the spending and saving priorities of consumers as well as the relative roles of the public and private sectors in the U.S. economy.” Overall, consumer sentiment remains at historically high levels despite a sharp monthly decline. However, the sharp rise in layoffs recently is likely to result in additional sharp declines. Stimulus efforts may help in the short term but ultimately, beating COVID-19 and getting life back to normal is the only way to sustainably boost the economy and consumer sentiment.

Robert Hughes

Bob Hughes

Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.

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