Is US consumer confidence ready to beat the expectations? – Guest Analysis

By Ramy Abouzaid, ATFX (CY) Dubai Rep Office Head of Market Research.

In an economy driven by personal consumption, consumer confidence is key in predicting the magnitude and timeframe of future recoveries, it is enough to mention that nearly 70% of 2019 GDP in the US was driven by personal consumption to understand the importance of the data – The index is composed of consumers’ assessment of present conditions and expectations about the future.

That 70% drive in GDP is rarely bothered by complicated economic data though, except one; unemployment. If we look at April’s figures with 20.5 million jobs lost, consumer confidence index fell to a nearly six years low to 86,9 down from 118.8 in March. When we combine unemployment or fear of losing a job with the continuous spread of COVID-19, it is evident that people will hold back on spending and are less likely to feel confident spending beyond necessities. With markets reopening and some states lifting lockdown restrictions, some would bet on seeing better figures in May report but the drop in consumer confidence is more likely to linger for the upcoming quarters.

According to the Primary Consumer Sentiment Index published by Refinitiv’s Ipsos for the month of May – which gives insight on consumers perception and expectation on current and future economic conditions, the results show a fall of 2.4% from last month with a 17.2% drop over a year. It is also important to mention that a decline of 31.7% is expected in the U.S. Retail and Restaurant Q1 2020 earnings and is expected to drop to 65.5% in the second quarter.

Another keynote to consider is that during the month of April, reopening in some states didn’t boost consumers’ confidence, and retailers across all 50 states were already less optimistic about the economy even before any of the states applied full lockdowns. 

So even post-lockdowns consumer’s confidence is going down? 

Opinions seem divided on lockdowns lifting, some fear a resurgence of new waves of the virus, others believe it is the first step to reach a U-shape recovery in the economy. These mixed feelings stabilized consumer confidence across most states in mid-April before the first states began reopening their economies. For the past month, reopening hasn’t contributed to a spike in new cases, which would lead some “orthodox believers” in lockdowns to go easy and feel more confident in taking part in the economy. Based on that, we believe a slow but steady growth in consumer confident might be reflected in May report.

For the next quarter though, any update on a COVID-19 vaccine or treatment, as well as monetary stimulus from the Federal bank, would give a major boost for consumer confidence. And with many pharmaceutical companies showing promising first stage experiments, and with the Fed “ready to do more”, attitude it seems we have a glimpse of hope in the next quarters after all.

The main challenge though, is that when there’s a hard stop on the economy, it’s difficult to get it restarted, and with an artificial boost and a switch in consumer’s way of spending it is really hard to predict future consumer behavior patterns, and there’s nothing more worrying to the markets then uncertainty.