Consumer sentiment takes a hard hit from coronavirus as durable goods orders drop
The latest economic data confirms that COVID-19 continues to have serious negative effects on the U.S. economic landscape from business activity to the way people see the future.
The Commerce Department reported on Friday that new orders for manufactured durable goods fell 14.4% in March while the University of Michigan’s consumer sentiment index dropped to 71.8 in April, the largest monthly decline on record.
The decline in the University of Michigan index from 89.1 in March reflected the expanding negative effects of the COVID-19 pandemic. The index stood at 97.2 in April 2019.
“Consumer sentiment will be critical in gauging the shape of the recovery in consumption, especially as some states attempt to reopen their economies in coming weeks,” Berenberg Capital Markets Chief Economist for the U.S. Americas and Asia Mickey Levy, and U.S. Economist Roiana Reid wrote in an economic comment.
The survey’s current economic conditions index fell to 74.3 in April from 103.7 last month while the index if consumer expectations dropped to 70.1 from 79.7.
“Households will need confidence that the acute stage of the pandemic has passed and that normal activities are safe — which hinges critically on confidence in medical and health delivery systems, and readily available testing for COVID-19. As such, we expect a very gradual and uneven recovery,” Levy and Reid wrote.
“While the decline in both indices indicates an ongoing recession, the gap reflects the anticipated cyclical nature of the coronavirus,” said Richard Curtin, the survey of consumers’ chief economist. “In the weeks ahead, as several states reopen their economies, more information will reach consumers about how reopening could cause a resurgence in coronavirus infections.”
He said the recovery will be gradual and take longer than in the past.
“The full restoration of consumer confidence will be more difficult and will take longer to complete than following any other recession since the Great Depression,” Curtin said. “While the collapse in confidence reflects assessments of personal finances and the national economy, the primary cause of the crash in confidence was the coronavirus rather than some economic event.”
He said that the first sign of the restoration in confidence won’t be due to an improving economy, but rather when consumers become convinced the spread of COVID-19 has been effectively contained.
“Regardless of official announcements made by state or federal agencies, individual consumers will form their own judgements about the risks of the COVID-19 virus to themselves, their families, friends, and their communities,” he said.
“The pandemic will end with a vaccine, but the scares from the economic devastation will remain part of family lore long into the decades ahead as did the wounds of the Great Depression,” Curtin said.
Commerce said durable goods fell 14.4% to $213.2 billion in March. Economists surveyed by IFR Markets had expected a decline of 11.0% in March.
March’s drop was mostly attributable to the spreading effects of the COVID-19 pandemic and came after three straight monthly gains.
Excluding transportation, new orders dropped 0.2% and excluding defense, new orders declined 15.8%.
Transportation equipment, down two of the last three months, led the decrease, falling 41.0% to $51.2 billion.
Shipments of manufactured durable goods, down eight of the last nine months, decreased 4.5% to $240.7 billion. Unfilled orders for manufactured durable goods fell 2.0% to $1.1 trillion after three straight monthly increases.
Due to the pandemic, many businesses are operating on a limited capacity or have completely ceased operations.