Mixed Emotions for Consumers in Early May – Robert Hughes (05/18/2020)

The preliminary May results from the University of Michigan Surveys of Consumers show overall consumer sentiment improved slightly following the largest single-month decline on record. Consumer sentiment increased to 73.7 in early May, up from 71.8 in April, a 2.6 percent rise (see chart). From a year ago, the index is still down 26.3 percent.

However, the two sub-indexes also posted opposing results in early May. The current-economic-conditions index rose to 83.0 from 74.3 in April (see chart). That is an 8.7-point gain following a record drop in the previous month. The increase is an 11.7 percent rise for the month but still leaves the index with a 24.5 percent decrease from May 2019.

The second sub-index — that of consumer expectations, one of the AIER leading indicators — sank 2.4 points (see chart) or 3.4 percent for the month and is 27.6 percent below the prior year. The 2.4-point decline puts the index at the lowest level since November 2013 (see chart), and contrasts with the rise in the current conditions index. According to the report, “Confidence inched upward in early May as the CARES relief checks improved consumers’ finances and widespread price discounting boosted their buying attitudes. Despite these gains, personal financial prospects for the year ahead continued to weaken, falling to the lowest level in almost six years, with declines especially sharp among upper income households. Improved views on buying conditions were due to discounted prices and low interest rates, although their impact was partially offset by uncertainties about job and income prospects.” The report goes on to add, “The Expectations Index still indicates that no economic restoration is as yet anticipated by consumers.”

A second interesting result came from the survey. According to the report, ”Consumers were asked to identify their top concerns about the pandemic: was it the threat to their health, the required social isolation, or the impact on family finances? The health threat dominated in both months, cited by 61% in April and 57% in May. The original hypothesis was that as their primary concerns shifted from health to finances, consumers would become less accepting of constraints on reopening the economy. Those that cited damages to their finances as their top concern fell to 17% in May from 22% in the prior month. Surprisingly, it was greater concerns about social isolation that increased, cited as the top concern by 21% in May up from 14% in April. While these shifts were quite small, they indicate the growing costs of social isolation and its potential to shift opinions about reopening the economy.”

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