October 27, 2020
The Conference Board reported that consumer confidence fell 0.9 point in October to 100.9 after having jumped 15.5 points in September. But the index fell 46.9 points in March and April combined as the corona virus and the shutdown in the economy took its toll. Confidence is recovering slowly and remains well below its pre-recession level.
Consumers are relatively optimistic about current conditions in the economy but remain concerned about what the economy might look like six months from now. Given the uncertainty about the election next week, the apparent faster pace of spread of the virus, and uncertainty regarding when a virus might be available such sentiment is warranted. But even at today’s relatively low level of confidence consumer continue to spend.
The federal government has passed two stimulus bills totaling $3.0 trillion. Those funds have worked their way into the economy. As a result, we expect Q3 GDP to jump by 30.0% and Q4 to grow at a 1-.0% pace. Thus far, we have seen the recovery create 11.4 million jobs in the past five months (after having lost 22.0 million jobs in March and April). The unemployment rate has shrunk from a peak of 14.7% in April to 7.9% in September. It started at about 3.5%. Home sales — both new and existing — are higher now than they were before the economy dipped into recession in March and April. Ditto for retail sales. The consumer spent freely for the past several months despite confidence levels that had declined sharply. The bottom line is that the economy is recovering nicely but still has a ways to go to get GDP and employment back to their pre-recession levels. .
Confidence data reported by the Conference Board are roughly matched by the University of Michigan’s series on consumer sentiment. As shown in the chart below, trends in the two series are identical but there can be month-to-month deviations. Both series experienced very sharp declines in March and April and have registered only a moderate rebound.