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University of Michigan Consumer Confidence improved in December to 80.7
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Consumer sentiment improved in the December 2020 survey despite the ongoing surge in covid infections and deaths, according to the University of Michigan Surveys of Consumers.
The improvement was due to Democrats becoming much more positive and Republicans much more negative about long-term prospects for the national economy, said U-M economist Richard Curtin, director of the surveys.
Twice as many Democrats as three months ago expected a continuous expansion over the next five years (54% up from 27%), while that same favorable expectation was nearly cut in half among Republicans (32% down from 60%). Importantly, the near-term outlook for the national economy remained unfavorable due to an expected rise in stay-at-home orders and business shutdowns due to the surging covid virus.
“Although the rollout of the COVID vaccine has been greeted as the beginning of the end, the end of the pandemic is still on the distant horizon in terms of a return of normalcy for consumer behavior,” Curtin said. “Precautionary motives will continue to shape most economic and personal behavior.
“While the recent passage of more relief payments and boosted jobless benefits are welcome, they will hardly offset the economic impact of renewed regulations due to the resurgence in COVID inflections and deaths. It would compound past mistakes to think that future actions could wait until the short duration of the current financial aid package runs its course.”
Widening gap between personal finances and performance of economy
The typical pattern over the past half century has been that consumers’ assessments of their personal finances and the national economy followed similar trends, Curtin said. Currently, assessments of the economy have fallen more than twice as much as consumers’ overall judgments about their current finances.
The much smaller falloff in personal finances reflects a growing offset: Some households that have been devastated by job and income losses due to the pandemic were largely offset in the overall figures by other households who have benefited from continued employment by working at home throughout the pandemic. Along with rising home and stock prices, this has caused a significant increase in income and wealth inequality since the start of the pandemic, Curtin said.
Uncertain prospects for jobs
Six-in-10 consumers made spontaneous references to the pandemic’s negative impact on jobs. When directly asked about how they expected the national unemployment rate to change in the year ahead, there was a good deal of uncertainty as increases, decreases or an unchanged unemployment rate were nearly equally common. Six months ago, consumers more frequently expected declines in joblessness, but those positive views have been reduced as they have reluctantly concluded that the virus will persist longer than they had initially anticipated, Curtin said.
Consumer Sentiment Index
The Consumer Sentiment Index was 80.7 in December, up from 76.9 in November, but well below last December’s 99.3. The gains reflect improvements in the Expectations
Index (74.6, up from last month’s 70.5 but below last year’s 88.9). The Current Conditions Index rose to 90.0 in December, between last month’s 87.0 and last year’s 115.5.
The Sentiment Index slipped in late December, although it remained higher than last month despite the ongoing surge in covid infections and deaths. The improvement was due to a large and rapid partisan shift, with Democrats becoming much more positive and Republicans much more negative. The largest change was in long term business prospects, as twice as many Democrats as three months ago expected a continuous expansion over the next five years (54% up from 27%), while that same favorable expectation was nearly cut in half among Republicans (32% down from 60%). The pandemic has had a much greater relative impact on assessments of the overall economy than on assessments of consumers' current personal financial situations. Trends in how consumers evaluate their own finances and how they assess changes in the national economy have followed a close association over the past half century (see the chart). Since the start of the pandemic, however, a huge divide has grown across households in how they assess their own personal finances: the finances of those that continue to be employed and working at home have remained positive while those who have lost jobs and incomes have been quite negative. Growing inequalities have also been due to rising home and stock prices. In contrast, nearly everyone has reported negative assessments of current conditions in the national economy. This gap signifies the pandemic nature of the current downturn; the second largest gap occurred in the downturn surrounding 9/11. While the rollout of the vaccine has been greeted as the beginning of the end, the end of the pandemic is still on the distant horizon in terms of a return to normalcy for consumer behavior, even among the most favored households. Precautionary motives will continue to shape both economic and personal behavior.
Posted: December 23, 2020 Wednesday 10:00 AM