Because of concerns that the delta form of COVID-19 would exacerbate the severe economic consequences of the pandemic, consumer sentiment has plummeted to its lowest level since November 2011.
According to an update published Friday, the University of Michigan index of consumer mood fell to 70.2 in early August from its previous peak of 81.2 in July. With the dip, the market saw a 13.5 percent fall and fell well short of consensus forecasts of 81.2 percent. Even during the height of the epidemic, in the spring of 2020, consumer confidence did not deteriorate to the same extent.
Consumer Sentiment Drops In August Due To Delta And Inflation Fears
According to Richard Curtin, director of the survey, consumers have correctly reasoned that the economy’s performance will deteriorate over the next several months. However, the extraordinary increase in negative economic assessments reflects an emotional response, primarily due to dashed hopes that the pandemic would be brought to a close. Following April 2020, when sentiment dropped by 19.4 percent, and the 2008 recession, when sentiment dropped by 18.1 percent in October of that year, the current fall is the third-largest drop in sentiment since the beginning of the decade.
To provide some context, the average level of sentiment in 2020 was 81.5, in 2019, it was 96, and in 2018 it was 98.4. As the economy reached its zenith in February of last year, the index climbed as high as 101, even though unemployment was just 3.5 percent. Consumers’ perceptions of the present state of affairs decreased to 77.9 in August from 84.5 in July.
There seems to be a mismatch between the current economic statistics and Wall Street forecasts, which are much more optimistic, and the apparent acute dread of the near future on the part of consumers in the current environment. In a report released last Friday, the government said that over a million jobs were created in July, the most significant monthly increase in nearly a year. In addition, the jobless rate dropped to 5.4 percent, a level not seen since the Pandemic of 1918.
However, the 10-year US bond yield fell from around 1.37 percent to 1.3 percent on Friday, as anxious fixed-income investors sought the security of steady government paper to hedge their bets. The bond rate falls as investors purchase a more significant number of bonds.
The COVID-19 epidemic has thrown the country’s economic recovery into disarray, causing unforeseen twists and turns. While the number of new virus cases dropped dramatically earlier this year due to increased vaccinations, the introduction of new delta variants, a much more contagious pathogen strain, has increased new infections, hospitalizations, and deaths in the United States and Europe.
Because of the new variation, several firms have decided to postpone reopening plans. In addition, some enterprises and municipalities have implemented vaccination requirements in an attempt to reduce the increasing number of new illnesses. Aerospace companies have also been affected, with Southwest and Frontier both announcing lately that their third-quarter sales would be lower than anticipated.
Consumer prices rose by 5.4 percent in the 12 months ending in July of this year. The number came in somewhat higher than expected, although it was less dramatic than the soaring price rises that have been seen in recent months. The annual inflation rate had earlier increased to 4.2 percent in April, then increased to 5 percent in May, and then reached 5.4 percent in June.
Despite the recent substantial increase in the gross domestic product, unemployment remains at 5.4 percent. There are millions more unemployed now than there were before the epidemic that began in 2009. Many businesses are also having difficulty finding qualified employees, and there are now more job vacancies than there are qualified candidates to fill.