The preliminary November results from the University of Michigan Surveys of Consumers show overall consumer sentiment fell in early November and remains well below pre-lockdown levels. Election results and a resurgence in Covid-19 infections were key themes driving the weak results.
Overall consumer sentiment decreased to 77.0 in early November, down from 81.8 in October, a 5.9 percent decline (see top chart). From a year ago, the index is down 20.5 percent. The sub-indexes both fell in early November though expectations fell far more sharply. The current-economic-conditions index dropped to 85.8 from 85.9 in October (see top chart). That is a 0.1 percent decline and leaves the index with a 23.1 percent decrease from November 2019. The second sub-index — that of consumer expectations, one of the AIER leading indicators — sank 7.9 points or 10.0 percent for the month to 71.3 (see top chart) and is 18.3 percent below the prior year.
All three indexes remain well below the pre-pandemic levels, with the Current Economic Conditions index 23.7 percent below its 2018-2019 average and the Index of Consumer Expectations 18.3 percent below the recent average. Combined, the overall index sits 20.8 percent below the pre-pandemic average (see bottom chart).
According to the report, “The outcome of the presidential election as well as the resurgence in Covid infections and deaths were responsible for the early November decline.” Furthermore, there were clear distinctions along political lines in November. The report goes on to add, “Interviews conducted following the election recorded a substantial negative shift in the Expectations Index among Republicans but recorded no gain among Democrats. It is likely that Democrats’ fears about the Covid resurgence offset gains in economic expectations: 59% of Democrats reported that their normal life had changed to a great extent due to the coronavirus compared with just 34% among Republicans. The gap in expectations closed somewhat due to the coronavirus and the partisan shift in expectations that began well before the election. Note that Republicans now voice the least favorable economic expectations since Trump took office, and Democrats have voiced more positive expectations. In the months ahead, the partisan gap is likely to enlarge, although the gains will be limited until a potential vaccine is approved and widely distributed.”
Weakening sentiment and resurging infections along with renewed restrictions may act as a restraint on consumer spending and overall economic activity, resulting in a slower and more drawn out recovery. Recent trends in some data are keeping the level of uncertainty regarding the economic outlook elevated.