U.S. consumer sentiment begins its descent

*During this period of high uncertainty, sentiment measures take on even more importance as we gauge economic activity in real time, because “hard” economic data are published with a lag. They will allow us to identify the depth of the decline in activity and the start of the eventual rebound. The University of Michigan Consumer Sentiment Index, which is released at the middle and the end of each month, showed a moderate deterioration in sentiment in early March as concerns about the spread of COVID-19 in the U.S. intensified.

*The University of Michigan Consumer Sentiment headline index declined by 5.1pts to 95.9 in early March from 101.0 in February, a slightly smaller drop than expected (consensus: 95.0) and the lowest level since last October. The expectations index (Mar.: 85.3, Feb.: 92.1) declined much more than the current conditions index (Mar.: 112.5, Feb.: 114.8), as would be expected in this uncertain environment. See Charts 1 and 2.

*According to the survey, “the initial response to the pandemic has not generated the type of economic panic among consumers that was present in the run-up to the Great Recession.”

We expect sentiment to continue to deteriorate given how rapidly conditions have changed over the last few days. This situation is unique for households as it combines uncertainties about a global health pandemic, their financial situations, employment, and the economy. It is going to take some time for households’ social behavior and buying attitudes to return to normal, even after the economy opens back up. This is a significant shock that has evolved at an alarming pace.

The biggest effect on consumption is coming from the very necessary social distancing measures and event cancellations that are affecting the recreational services, restaurants and bars, personal care services, travel, and leisure & hospitality sectors the most. Moreover, employees in these industries will lose jobs and incomes, forcing them to reduce spending.

Respondents to the U. Mich. Survey reduced their expectations about future incomes and employment, and a large 78% of households view business expectations unfavorably (compared to 58% in February). Surprisingly, the shares of households saying it is a good time to buy a major household item (77%) and vehicle (64%), ticked up slightly, and the share saying it is a good time to buy a house remained high at 70%. It will be interesting to see how these assessments evolve in coming weeks. Growing uncertainty about the future will be associated with less spending on discretionary goods and big-ticket items.

The sell-off in equity markets that has significantly reduced household wealth is quickly dragging down household sentiment, but when markets do rebound, we do not expect consumer sentiment to follow them back up as quickly.

Chart 1:

Chart 2:

Roiana Reid, roiana.reid@berenberg-us.com

Member FINRA & SIPC
This email and any files or attachments transmitted with it may contain confidential or privileged information and are intended solely for the use of the intended recipient. If you are not the intended recipient, please do not copy, retain, disclose or use any part of the message or its attachments. Please notify the sender immediately by return email and destroy or delete any copies. Dissemination or use of this information by anyone other than the intended recipient is unauthorized and may be illegal. Communications by email cannot be guaranteed to be secure or error-free. Emails and their attachments are subject to being intercepted, becoming corrupted, getting lost or delayed, or may contain viruses. Therefore, neither the sender nor Berenberg Capital Markets LLC (BCM) accepts any liability for any errors or omissions in the content of this message or problems in its transmission, including those arising as a result of its transmission over the internet.
BCM does not assume liability for the correctness and completeness of all information given and/or attachments contained herein. The provided information has not been checked by a third party, especially an independent auditing firm. BCM explicitly points to the stated date of preparation. The information given can become incorrect due to passage of time and/or as a result of legal, political, economic or other changes. BCM does not assume responsibility to indicate such changes and/or to publish an updated document. Any document(s) or attachment(s) is meant exclusively for institutional investors and market professionals, but not for private customers. It is not for distribution to or the use of private investors or private customers.
In light of upcoming regulatory changes, please be informed that BCM will continue to share information with you until unsubscribe@berenberg-us.com receives your termination/deletion request. For more information about the General Data Protection Regulation (GDPR) and our privacy policies please refer to https://www.berenberg-us.com/legal-notice. BCM reserves all the rights in this communication. No part of this communication or its content may be rewritten, copied, photocopied or duplicated in any form by any means or redistributed without BCM’s prior written consent.
The information contained herein and sourced may have been adopted from various news sources, for example, Bloomberg, Reuters, Street Account and various other sources. BCM does not claim accuracy, completeness, timeliness, suitability, or otherwise regarding all the information on the securities, stock markets, or developments referred to within. On no account should the Content be regarded as a substitute for the recipient procuring information for himself/herself or exercising his/her own judgments. BCM is not responsible for any recipient(s) use of this information. This Content is not a solicitation or an offer to buy or sell any of the securities contained herein. This information does not constitute a recommendation or take into account the particular investment objectives, financial situations, or needs of clients. Clients should consider whether any advice or recommendation in this Content is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. The price and value of securities which may be referred to in this Content and the income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain securities.