The confidence of California consumers in the economy is in free-fall, as the pandemic rages on, taking a devastating toll on human life and the economy. According to a recent survey of Californians, consumer confidence has plummeted by 34% since the onset of COVID-19 two months ago. This assessment is particularly troublesome, given that consumer confidence drives buying power and consumption accounts, on average, for 70% of all U.S. economic activity. Absent a reversal of consumer sentiment, the prospect of sustained economic recovery dims.
The California Consumer Index, released last week by Claremont McKenna College’s Lowe Institute of Political Economy and Chapman University, indicates that consumers’ confidence in the economy dipped by 22% in the second quarter 2020, as most businesses remained closed in response to the pandemic. This follows on the 17% decline in the first quarter. The survey data likely understates the angst of consumers, given that the survey was conducted prior to some businesses being opened, followed by directives shortly thereafter ordering restaurants and other businesses to shut down again due to the dramatic surge of COVID-19 infection and deaths.
“The decrease in consumer sentiment is broadly felt, with steep declines in every demographic group, as California navigated a state-wide stay-at-home directive and shutdown of most businesses,” said Cameron Shelton, Director of the Lowe Institute of Political Economy at Claremont McKenna College.
The survey points out that some groups have been hit harder than others. The confidence of those surveyed who are self-employed spiraled downward by a devastating 43%. As to reaction by age groups – those age 18-24, who were more likely to have been laid off or furloughed as a result of the shut-down than others, experienced the greatest collapse in confidence – a decline of 37%, while sentiment among those 65+ dipped by 29%.There were few differences among those between the ages of 24 – 64. “Only at the highest level of income – those earning more than $150,00 per year – do we begin to see a systematically smaller effect of the crisis,” Shelton noted.
The 2,000-person survey asked respondents about their current situation, perceived prospects and spending plans.
According to the survey, attitudes regarding whether it is a good time to purchase an automobile has declined 14% since fourth quarter 2019. This is discouraging news, given that
consumers’ willingness to buy big ticket items, like cars, is considered a key economic indicator
The latest U.S. Labor Department report indicates that 1.3 million Americans applied for unemployment benefits the week of June 29, signaling that layoffs are continuing as the job market struggles upward. When survey respondents weighed in on prospects of securing a job if employment is lost over the next twelve months, it was not a pretty picture, with confidence declining by 30% over the past six months. Fears about job loss and sustained unemployment may lead to even those with healthy incomes pulling back on spending.
As to views of current business conditions in California, survey findings are grim. The confidence of consumers has hit rock bottom, having eroded by a staggering 75% since the fourth quarter 2019. By contrast, when asked about national business conditions a year out, respondents were somewhat hopeful, evidenced by only a 27% dip in sentiment.
The tragic impact of the virus on people’s lives continues and the trajectory of economic recovery remains a moving target. The recent, devastating escalation of COVID-19 infection in California and across the nation, as the economy began re-opening, is a dangerous wild card, with consumers taking note.
A California Health Care Foundation tracking poll, taken before Governor Newsom ordered in-dining restaurants and other businesses to re-close, shows a substantial increase in the percentage of respondents who believe that the shelter-in-place was relaxed too soon – moving from 43% three weeks ago to 53% now. This may be predictive as consumers, who have been venturing out, re-think whether to stay home. Furthermore, the Associated Press reports that spending on credit and debit cards issued by the Bank of America is falling, and auto and home sales have slowed. And, although the national unemployment rate has dipped to 11 % from 13%, only 1/3 of jobs that vanished in March and April have been regained. Wall Street is nervous and the financial community on edge. Congress is still battling on the issue of extending supplemental unemployment aid and other stimulus programs – an effort which, so far, is stalled.
As a consummate optimist, writing this column gives me pause. But I am encouraged by the words of author Greg Kincaid — “No matter how much falls on us, we keep plowing ahead. That’s the only way to keep the roads clear.”
Billie Greer, among other activities, is a Trustee of the Lowe Institute of Political Economy at Claremont McKenna College. She regularly reports on the Consumer Sentiment Index which is released quarterly.