US consumer sentiment slumped to its weakest level in more than nine years, as a rise in new Covid-19 cases damped Americans’ outlook for the economy and their personal finances.
The University of Michigan’s consumer sentiment index fell to 70.2 in August, the lowest reading since December 2011, according to a survey published on Friday. The month-to-month slide came in below economists’ expectation for the index to match its July reading of 81.2.
Richard Curtin, chief economist for the university’s consumer surveys, characterised the decline as a “stunning loss of confidence” as Americans react to a resurgence of coronavirus cases and hospitalisation attributed to the spread of the Delta variant.
“Consumers have correctly reasoned that the economy’s performance will be diminished over the next several months, but the extraordinary surge in negative economic assessments also reflects an emotional response, mainly from dashed hopes that the pandemic would soon end,” Curtin said.
Previously, the index’s lowest reading of the pandemic was 71.8 in April 2020.
Andrew Hunter, senior US economist at Capital Economics, warned that August’s deterioration in optimism could be a sign the current wave of Covid-19 infections “could be a bigger drag on the economy than we had thought.”
“With the fiscal stimulus boost now well passed and surging prices starting to hit real incomes, the drop in confidence is another reason to expect consumption growth to slow sharply over the coming months,” Hunter added.
Navy Federal Credit Union corporate economist Robert Frick noted the shutdowns and lay-offs seen earlier in the pandemic are still unlikely to occur. “But the Delta wave is an unknown, and just as with inflation expectations, uncertainty shakes confidence but is unlikely to shake spending,” he said.
Consumers reported less confidence in current economic conditions, while their view of future prospects fell by a wider margin with long-term inflation expectations worsening. The survey found that consumers forecast inflation of 3 per cent over the next five years, up from 2.8 per cent in July.