Consumer confidence lowest since 2017, but above projections

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Consumer confidence dropped in March as the economy shut down to prevent the spread of the coronavirus, but economists expected a larger decline.

The consumer confidence index fell to 120.0 in March (1985=100) from 132.6 a month earlier, the Conference Board said Tuesday. The reading was the lowest since July 2017

The present situation index dropped to 167.7 from 169.3, while the expectations index plunged to 88.2 from 108.1.

Economists polled by IFR Markets expected confidence to fall to 112.0.

“Consumer confidence is falling and we haven’t reached the bottom,” said Ron Carson, founder and CEO of Carson Group. “This data was assembled primarily in the first half of March before lockdowns and layoffs had become more common. The survey period explains why the present situation’s index, which is based on consumers’ views of current business and labor market conditions, only fell from 169.3 to 167.7. While the decline this month reflects some of that concern, we expect consumer confidence to drop much more in future months.”

“Today's consumer confidence figure understates the challenges our economy faces in the near and intermediate term,” according to Gary Zimmerman, CEO of MaxMyInterest. “Consumers may remain (rightfully) confident in the long-term outlook for our country and economy, but in the near term, the inability to engage in many normal economic activities will significantly curtail consumption, which will have ripple effects through the economy.”

When the nation returns to normal, he said, “there is likely be a boom in economic activity as travel resumes, consumers begin to spend, and employers seek to re-hire their staff. However, many families — including small business owners and those unemployed — will suffer permanent economic loss.”

“Consumer confidence declined sharply in March due to a deterioration in the short-term outlook,” according to Lynn Franco, senior director of economic indicators at the Conference Board. “The present situation Index remained relatively strong, reflective of an economy that was on solid footing, and prior to the recent surge in unemployment claims. However, the intensification of COVID-19 and extreme volatility in the financial markets have increased uncertainty about the outlook for the economy and jobs. March’s decline in confidence is more in line with a severe contraction — rather than a temporary shock — and further declines are sure to follow.”

While the respondents believing conditions are “good” was nearly steady, those considering conditions "bad" gained to 11.4% from 10.8%. The number who thought jobs were “plentiful” also slipped in the month.

Consumers also expect conditions to worsen in the next six months, according to the survey, with fewer jobs available.

While the confidence index was better than projected, “decreases were broad-based,” noted Scott Anderson, chief economist at Bank of the West. “Consumer buying plans were weaker across the board with fewer consumers planning to make major purchases over the next six months. This is consistent with our forecast for real consumer spending to begin falling in the first quarter and plunge in the second quarter as job and income loss deepens with business shutdowns.”

“The decline in consumer confidence, rising job losses, and fewer working hours and income growth, are expected to reduce real consumer spending this month and in the months ahead,” he added.

Elsewhere, the service sector contracted in Texas, plunging to negative 67 in March from positive 14 in February, according to the Federal Reserve Bank of Dallas’ monthly survey, conducted March 17 to 25.

“Following steady growth in the beginning of the year, activity in the Texas service sector saw an unprecedented contraction in March amid the ongoing COVID-19 pandemic and related measures,” said Christopher Slijk, Dallas Fed associate economist. “The survey’s headline revenue index plummeted over 80 points to its lowest reading on record since the survey began in January 2007.

Separately, the Chicago Business Barometer also fell — to 47.8 in March from 48.9 in February — its ninth consecutive month in contraction.

Production and new orders were the only main components to fall in the month, according to the release.

The Milwaukee-area purchasing managers’ index fell to 47.86 in March from 49.41 a month earlier.

The Federal Reserve Bank of Chicago’s Midwest Economy Index climbed to negative 0.08 in February from negative 0.35 a month earlier. “The data through February were unlikely to have been affected much by the COVID-19 outbreak,” the Bank said. “Economic data for March will be incorporated in the next MEI released on April 30.”

In housing news, the S&P CoreLogic Case-Shiller U.S. National Home Price Index (not seasonally adjusted), rose 3.9% in January on an annual basis, up from 3.7% a month earlier, the fifth straight rise.

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