background image

U.S. consumer confidence drop most on record in April

Macro

Christopher Dembik

Head of Macro Analysis

Summary:  This afternoon, we had another confirmation that the coronavirus is causing unprecedented damage to the U.S. economy. It is hitting severely domestic confidence on the top of those supply chain impacts. The Conference Board consumer confidence index, which is one of the key metrics to follow, is out at 86.9 in April versus 87.9 expected and prior 120. This is the biggest drop on record since 1968.


The present situation index declined by 90.3pts to 76.4 – a monthly slump that has never been seen in previous recessions - and the expectations index surprisingly increased by 7pts to 96.7 – remaining within its long-term range (chart 1). This unexpected rise may be explained by the fact consumers consider that the situation can only get better after being really, really bad.

Somehow, they are more optimistic about the short-term business outlook but they send mixed signals which tends to confirm that uncertainty about the economic outlook continues to weight a lot on consumption expectations. Whereas the percentage of consumers expecting business conditions will improve over the next six months jumped by 21.3pts to 40%, those considering that business conditions will worsen also increased by 9.3pts to 25.7%.

Looking at labor markets, without much surprise, consumers’ perceptions eroded quite a lot compared to the previous month. Only 43.3% of respondents consider that jobs are “plentiful” versus 20% in March. 13.8% of respondents also signal that jobs are’ hard to get” versus 33.6% previously. It is bright clear that the deterioration of the labor market in the coming months will be quite phenomenal, and it suggests that the NFP report for the month of April due this Friday will be very ugly. We expect job destruction will reach at least minus 19 million.

In addition, the share of consumers expecting income to decrease over the next six months skyrocketed to 18.5% in April versus 10.1% in March. It is back to level reached in early 2013 (chart 2). Consumers also slightly downgraded their buying intentions for major appliances and quite sharply for autos. Consumers planning to buy autos within the next six months dropped to its lowest level since 2010, at 2.8% versus 3.8% in the previous month. We anticipate a rebound as soon as the lockdown will be lifted and that there will be more visibility about the economic outlook.

Finally, what is probably the most interesting and underappreciated element is the strong decline in vacation intentions (chart 3). Within the next six months, vacation intentions within the U.S. felt to all-time low at 27.1% and vacation intentions to a foreign country are below those of the GFC at 6.8%. It reinforces our view that the long-term impact of the outbreak on tourism will be massive and as devastating as the impact of a meteorite. It is largely unlikely that the tourist sector will get back to normal this year, given the risk of second or even third wave. The loss caused to the sector will probably take years to be repaired.

The evolution of consumption will be a critical factor once the health crisis will be over. The speed of the recovery will be dependent on sentiment, notably the evolution of consumption. In the United States, it remains the predominant driver of economic growth, accounting for 70% of GDP. It is probably too early to know how the consumers will behave in the coming months. Are we heading towards revenge consumption or an increase in saving? What we know for sure  is that a prolonged deterioration in key metrics, such as unemployment and wages, would signal trouble for consumer consumption and could seriously slowdown the recovery.

28_CDK_1
28_CDK_2
28_CDK_3

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.