Consumer sentiment remains low for fifth month

August 28, 2020
Written By:
Bernie DeGroat
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Stock market graphs and charts. Image credit: iStockConsumer sentiment has remained trendless in the same depressed range it has traveled in the past five months, according to the University of Michigan Surveys of Consumers.

The August figure posted an insignificant gain of just +0.4 Index points above the April to July average, said U-M economist Richard Curtin, director of the surveys. The small August gain reflected fewer concerns about the year-ahead outlook for the economy, although those prospects still remained half as favorable as six months ago.

While consumers anticipate that the economy will continue to improve, those gains will significantly slow by year-end without some additional spending programs to diminish the hardships faced by unemployed workers and essential and small businesses, as well as support for state and local governments, Curtin said.

“Although an effective COVID-19 vaccine may be approved by year-end, when most consumers can expect to be vaccinated is another issue that has thus far received little public attention,” he said. “Priority lists are inevitable, and the difference between the first and last position is likely to be at least several months or even longer.

“A consensus on equitable treatment across the population is unlikely, which could prolong and enlarge discontent, and act to slow the pace of economic growth. While it is not advantageous for presidential campaigns to discuss this issue, it could form the last component of the negative impact of the coronavirus on the economy.”

Personal financial expectations improve

Consumers’ assessments of their current finances remain depressed, as the proportion who reported improved finances stayed in the tight range of 38% or 39% for the past five months, well below the all-time peak of 58% in February. Net income gains were reported by just 9% in August, down from 32% six months ago.

Despite these negative views of current finances, consumers expect some improvement in the year ahead, as they anticipate a 1.6% gain in their household income, up sharply from the April low of 0.4%. Household income gains expected among those under 45 rose to 3.3% in August 2020, up from a low of 2.1% three months ago.

Home sales rise

Historic lows in mortgage interest rates have propelled home sales forward, Curtin said. Consumers have become more convinced that interest rates on consumer loans will remain no higher than at present—a view held by two-thirds in August.

The decline in mortgage rates also lessened the negative impact of job and income uncertainty on consumers, which had caused them to postpone home purchases, Curtin said. Another positive factor was that home values were expected to increase annually by 2.8% over the next five years. There was only one other survey in the past 13 years that recorded a higher expected long-term rate of gain in home values.

Consumer Sentiment Index

The Consumer Sentiment Index was 74.1 in the August survey, between July’s 72.5 and June’s 78.1, remaining well below February’s pre-pandemic peak of 101.0. The Expectations Index was 68.5 in August, between last month’s 65.9 and June’s 72.3. The Current Conditions Index was 82.9 in August, barely above July’s 82.8, but below June’s 87.1.

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.

 

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