Oct 28, 2020 - Economy

Coronavirus surge is sinking consumer confidence

Data: Hamilton Place Strategies, CivicScience; Chart: Axios Visuals

The rise in coronavirus cases in certain parts of the U.S. is stunting confidence across the country, a crop of new reports show.

Driving the news: After stalling during the previous two-week period, overall economic sentiment declined for the first time in two months, according to the Economic Sentiment Index, a biweekly survey from data firm CivicScience and Hamilton Place Strategies (HPS).

  • This drop may be the sign of further declines in sentiment to come: over the course of three readings during the 'summer surge' of COVID cases in June and July, economic sentiment dropped 5.1 points," analysts for HPS noted in a release.
  • "Leading the declines this week were drops in confidence in the housing market (down 2.8 points) and confidence in the job market (down 2.0 points)."

Similarly, the U.S. Index of Consumer Sentiment, which tallies a collection of daily surveys from data analytics firm Morning Consult, showed confidence essentially unchanged from the prior week.

The state of play: "It’s time to acknowledge the new reality: Economic growth in October in the United States has ground to a standstill," says John Leer, an economist for Morning Consult.

  • "If the recovery were gaining momentum, a strengthening job market would support consumption growth, but Morning Consult’s data shows persistently weak demand at least for the next month."
  • A plateau of consumer confidence is uneventful in a strong economy, but during a downturn it can signal larger problems, analysts note. Households’ personal finances are already weak, and without additional improvements to the economy, consumption is poised to contract.

The bottom line: The Conference Board's consumer confidence index declined in October after a strong September reading, largely because of flagging expectations about the future.

  • “Consumers’ assessment of current conditions improved while expectations declined, driven primarily by a softening in the short-term outlook for jobs," Lynn Franco, the Conference Board's senior director of economic indicators, notes in a statement.
  • "There is little to suggest that consumers foresee the economy gaining momentum in the final months of 2020, especially with COVID-19 cases on the rise and unemployment still high.”
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