Coronavirus

Coronavirus hits the economy where it hurts: Consumer confidence

Steep dents in consumer optimism are to be expected with such severe and widespread economic pain.

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The coronavirus pandemic is finally starting to take a toll on one of the economy's most important strengths under President Donald Trump: consumer confidence.

A closely watched survey of consumer sentiment published monthly showed Tuesday that Americans across the board are getting more worried about the state of the economy and how their own personal finances will fare. The index published by The Conference Board dropped to 120 in March from 132.6 in February — its lowest level since June 2017. (The index is compared to a 1985 benchmark, set at 100).

Steep dents in consumer optimism are to be expected with such severe and widespread economic pain, but it’s a hugely important measure to keep track of because consumers’ short-term outlook is a telling indicator of what will happen in the economy.

“Consumer spending is 70 percent of GDP,” said Torsten Slok, chief international economist at Deutsche Bank Securities. “An important part of what drives your and my consumer spending is your wealth and whether you have a job.”

The decline was not as bad as some economists were expecting — consumers were surveyed between March 1 and March 18 — but with more than 3 million people joining the unemployment ranks in just one week this month, that number is sure to drop much further.

The survey period “is almost entirely before the shutdowns/mass layoffs began,” said Megan Greene, an economist at Harvard Kennedy School. “I would also expect the next set of consumer confidence numbers to be a whole lot worse.”

Consumer confidence was consistently one of the bright spots in the U.S. economy under Trump before the pandemic hit; even when business investment shrank and the manufacturing entered a recession, healthy spending by Americans helped drive unemployment down to lows not seen since the 1960s.

That confidence could be difficult to recover, depending on the effectiveness of the relief measures pursued by Congress and the administration, economists say.

“It will take quite some time before we get back to the levels we saw in February,” Slok said of consumer sentiment.

The index reflects more than just how much consumers are spending but also is an early indicator of broader trends in the economy, Greene said.

“The consumer confidence survey isn't just about shopportunities (though I'd highlight those still exist — Peleton bikes are on back order),” she said. “It more reflects a state of being — how people feel about jobs, business conditions, their future income, current assessment of the economy, assessment 6 months ahead, and buying plans.”

“It could be a useful gauge to follow in terms of how the biggest component of GDP is evolving and how effective policy to protect and support consumers has been,” she added.