Consumer sentiment: Fear and loathing in America
Consumer sentiment has remained largely unchanged in the past month with gains prospects for the overall economy offset by declines in buying attitudes, according to the University of Michigan Surveys of Consumers.
The expected improvements in the economy were largely driven by those who expected Joe Biden to win, while the declines in buying attitudes were due to uncertain prospects for jobs and incomes due to the resurgence in COVID infection and death rates, said U-M economist Richard Curtin, director of the surveys.
Since a Biden win over Donald Trump was anticipated in the October survey by a double-digit margin (53% vs. 42%), it should be no surprise that optimism about the future course of the economy and personal finances among Democrats rose compared with Republicans, he said. Compared with three months ago, the Expectations Index rose by 50% among Democrats but just 7% among Republicans.
“Fear and loathing now dominate the mood of consumers, producing a false sense of confidence,” Curtin said. “Fears have increased due to rising rates of COVID infections and deaths, and loathing has been generated by the hyperpartisanship that has driven the election to ideological extremes.
“Moreover, the impacts of the covid virus and the extremes of hyperpartisanship will continue long past next week’s election, with the potential to permanently alter the economic and political landscape. Restoring optimism requires progress against the coronavirus and mitigating its uneven impact on families, firms and local governments.”
Prospects for the economy
There was little doubt that the majority of consumers expected the economy to post gains in the near term, but those gains would only slowly improve the overall economy over the longer term, Curtin said. Consumers judged it an even toss-up whether the economy would either avoid or experience another downturn over the next five years, the best reading in the survey during the past six months. Future job prospects remained the top concern of most consumers, with the national unemployment rate expected to decline at a slowing pace into late 2021.
Precautionary savings still a priority
There is no clearer sign of the negative impact on spending from job and income uncertainty than when consumers spontaneously cite these concerns, Curtin said. Importantly, these concerns will keep precautionary savings at elevated levels, he said.
Buying conditions for household durables have been stuck at lows for the past six months, while vehicle buying has fared slightly better due to low interest rates, although positive views of vehicle prices have steeply declined. Home purchases have been the sole exception, regaining their pre-pandemic peak due to lows in market mortgage rates, while new home construction boosted demand for appliances and other home furnishings.
Consumer Sentiment Index
The Consumer Sentiment Index was 81.8 in October, just above the 80.4 in September, but still below the February peak of 101.0 and last October’s reading of 95.5. The Expectations Index was 79.2 in October, up from 75.6 in September, but below last year’s 84.2. The Current Conditions Index fell to 85.9 from 87.8 in September and last October’s 113.2.
About the surveys
The Surveys of Consumers is a rotating panel survey based on a nationally representative sample that gives each household in the coterminous U.S. an equal probability of being selected. Interviews are conducted throughout the month by telephone. The minimum monthly change required for significance at the 95% level in the Sentiment Index is 4.8 points; for the Current and Expectations Index, the minimum is 6 points.