Some 70% of the US economy is driven by Consumer Spending. Consumer spending depends on many, many factors with some being more important at different times than other factors.
There are many factors that influence Consumer Confidence typically jobs and income are considered to be key determinants, however, there are other variables that occur that also influence Consumer Confidence. The dash vertical line is March 2020 when SARS-CoV-2 (COVID-19) impacted the US. In a VERY short time period, the perceptions of the job environment AND income went from being positive to negative. This unprecedented change was one of the reasons why the Federal Reserve immediately lowered its Fed Funds rate by historic proportions. The economy was in a state of shock and at risk of collapsing.
To get an idea of the impact that COVID-19 had on the economy, below is the NUMBER OF UNEMPLOYMENT filings per week. In March 2020 it spiked to unprecedented levels, and this would have an adverse impact on Consumer Confidence AND Spending. When 70% of an economy shuts down—’30’s depression Note the 2008/9 unemployment filing levels, not even close to March 2020.
COVID-19 clearly has an impact on Consumer Confidence (CC) but how to measure COVID-19? In the below graphic, COVID-19 related deaths are on the left axis and Consumer Confidence is on the right axis. COVID-19 related deaths started to appear in March 2020 and accelerated in both April and Fall 2020. Both times as COVID-19 deaths rose, Consumer Confidence plunged. When COVID-19 vaccines were rolled out in spring 2021, deaths declined and CC soared. When the Omicron variant strain appeared in the fall 2021 deaths began to rise and CC declined.
Historically jobs, income and unemployment variables are key determinates of Consumer Confidence. It is apparent that these factors have played a secondary role during the COVID-19 pandemic. Below is the Unemployment Rate and Consumer Confidence.
As COVID related deaths continue to decline and COVID fades from being the lead issue facing the US, other issues will arise. Issues of immediate concern are Russia/Ukraine, inflation, gas prices, wheat and mortgage rates. None of these issues will have a positive impact on Consumer Confidence and how quickly they will be resolved will be determined in the future. It is likely that none of these items will have a negative impact to the magnitude that COVID-19 did.
Bill Knudson, Research Analyst Landco ARESC