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University of Michigan Consumer Confidence rose in June to 78.1
Consumer confidence rose moderately in June along with the reopening of the economy in several parts of the country, according to the University of Michigan Surveys of Consumers.
Compared with the shutdown in April, consumers thought current economic conditions had improved but have only partially offset the steep declines due to the pandemic. Not surprisingly, many consumers thought the economy could only improve from its virtual standstill in April, and the record-breaking rise in unemployment would surely ease in the year ahead, said U-M economist Richard Curtin, director of the surveys.
Although the majority anticipated improving conditions, consumers were just as definite in their opinions that bad times financially and high unemployment would still dominate the economy well into 2021, he said.
“The early reopening in some parts of the country has helped to restore jobs and incomes, but it has come at the cost of an increase in the rate of infections,” Curtin said. “The Sentiment Index rose by just 0.5 points among Southern residents in June, and by only 3.3 points among Western residents.
“In the Northeast, in contrast, the Sentiment Index rose by an all-time record 19.1 points in June, with Northeastern residents apparently expecting only a negligible increase in infections. The resurgence of the virus in the South and West is likely to be accompanied by weaker consumer demand, which may act to temper spending in the rest of the country.”
Personal finances show little change
Assessments of their current finances remained near the lows recorded in April. Just 39% of all households in the June survey reported that their finances had recently improved, substantially below the 58% recorded in February. When asked to explain how their overall finances had changed, reports of income increases fell to just 28% in June, the smallest proportion in six years.
The largest net income declines from the February peak were among those under age 45 (down 40 percentage points) and households with incomes in the top third (down 38 percentage points). When asked about their income prospects for the year ahead, the expected median annual rate of gain was just 0.5% from April to June, the lowest quarterly figure in the past seven years.
Spending: The appeal of discounts amid job and income uncertainty
The appeal of price discounts prompts consumers to buy before the discounts vanish, and the persistent uncertainty about future jobs and incomes favors postponement. Recent data have indicated a modest increase in the attractiveness of discounts and low interest rates on purchases of household durables, vehicles and homes. While higher monthly sales gains are anticipated, the level of discretionary spending will remain depressed through 2021. The gains are likely to be lessened by a slowdown in reopening the economy in the months ahead.
Consumer Sentiment Index
The Consumer Sentiment Index was 78.1 in the June 2020 survey, up from 72.3 in May but well below last year’s 98.2. The Expectations Index rose to 72.3 in June, up from 65.9 in May and substantially below last year’s 89.3. The Current Conditions Index was 87.1 in June, up from 82.3 in May, but significantly below last June’s 111.9.
Consumer sentiment slipped in the last half of June, although it still recorded its second monthly gain over the April low. While most consumers believe that economic conditions could hardly worsen from the recent shutdown of the national economy, prospective growth in the economy is more closely tied to progress against the coronavirus. The early reopening of the economy has undoubtedly restored jobs and incomes, but it has come at the probable cost of an uptick in the spread of the virus. The Sentiment Index rose by just 0.5 Index-points among Southern residents in June, and by only 3.3 Index-points among Western residents (see the featured chart). In contrast, the Sentiment Index among residents of the Northeast rose by an all-time record of 19.1 Index-points in June, with residents apparently expecting the later and more gradual reopening to produce at worst a negligible increase in infections. The resurgence of the virus will be accompanied by weaker consumer demand among residents of the Southern and Western regions and may even temper the reactions of consumers in the Northeast. As a result, the need for additional fiscal policies to relieve financial hardships has risen. Unfortunately, confidence in government economic policies has fallen in the June survey to its lowest level since Trump entered office. The need for new relief programs is urgent and would best be accomplished before the national elections dominate the debate.
Posted: June 26, 2020 Friday 10:00 AM