Summary: US consumer confidence stable in August; index still close to April low; low interest rates help current conditions; lack of additional fiscal stimulus clouded outlook; “bad economic times” to persist.
US consumer confidence started 2020 at an elevated level. However, by March, surveys had begun to reflect a growing uneasiness with the global spread of COVID-19 and its reach into the US. After a plunge in April, US household confidence began to recover. However, it has since fallen back.
The latest survey conducted by the University of Michigan indicates the average confidence level of US households essentially remained unchanged at a depressed level in August. The University’s preliminary reading from its Index of Consumer Sentiment registered 72.8 in August, more than the generally expected figure of 71.
The result represented a slight improvement from July’s final figure of 72.5. “Two significant changes since April have been that consumers have become more pessimistic about the five-year economic outlook and more optimistic about buying conditions,” said the University’s Surveys of Consumers chief economist, Richard Curtin.
The report was released on the same day as July retail sales and June industrial production figures. US Treasury bond yields moved lower except at the ultra-long end where they increased a little. By the end of the day; the US 2-year Treasury yield had shed 3bps to 0.15%, the 10-year yield had slipped 1bp to 0.71% while the 30-year yield finished 2bps higher at 1.45%.
Curtin said the lack of an additional stimulus package had prompted the weaker outlook while lower interest rates had created more favourable buying conditions. Overall, he said the survey indicated the US household sector anticipated “bad economic times…to persist” in the year ahead, with a majority of consumers expecting “no return to a period of uninterrupted growth over the next five years.”
Less-confident households are generally inclined to spend less and save more; some drop off in household spending could be expected to follow. As private consumption expenditures account for a majority of GDP in advanced economies, a lower rate of household spending growth would flow through to lower GDP growth if other GDP components did not compensate.