Virus Plunged Consumer Confidence Into Death Spiral

Lonnie Sullivan covers his face with a mask while getting a haircut at The Barber Shop in Broken Arrow, Okla., on Friday. The shop was among several allowed to reopen in a loosening of coronavirus-related restrictions. (Matt Barnard/Tulsa World via AP)

MANHATTAN (CN) — Overshadowing the few signs of encouragement, an index that monitors consumer attitudes showed unprecedented anxiety Tuesday.

Released monthly by the Conference Board, the 10 a.m. report shows that confidence levels among U.S. consumers plummeted to 86.9 points, down from 118.8 last month — the largest on record in the 53 years the board has measured confidence. 

The good news from the report, mild though it may be, is that expectations for income, business and labor market conditions improved from 86.8 in March to 93.8 this month. 

“Consumers’ short-term expectations for the economy and labor market improved, likely prompted by the possibility that stay-at-home restrictions will loosen soon, along with a reopening of the economy,” Lynn Franco, a senior director at the board, said in a statement. 

Franco predicted that uncertainty about the true economic effects of Covid-19 will cause the index to fluctuate in the months ahead.  

Investors are still unsure how the pandemic may change consumer behavior going forward and are keenly watching states like Georgia to see how they handle re-opening portions of their economies.

Andrea Ghent, a professor of retail employment at University of North Carolina’s Kenan-Flagler Business School, noted during a Tuesday webcast that retail numbers had been declining prior to the stay-at-home orders. She said the spread of Covid-19 only intensified it for restaurants and other segments, and that many will not survive operating at half capacity. 

Greg MacKinnon, research director at the Pension Real Estate Association, speaks in a Tuesday webinar about the latest consumer index numbers.

Greg MacKinnon, research director at the Pension Real Estate Association, agreed the spread of Covid-19 likely didn’t fundamentally change shopping behavior but will rapidly accelerate existing trends, such as the move towards e-commerce. “People that like to shop, like to shop,” he said. 

Early gains by the Dow Jones Industrial Average, which had gained 400 points at the opening bell, evaporated were lost after the report came out. By the market’s close, the Dow finished 33 points under its starting position.

The Nasdaq had a rougher outing, giving up its gains and falling 1.4% for the day.

Investors were earlier spurred to buy by promising earnings reports, and they are watching for a number of key companies reports later in the week. 

One company particularly on investors’ radar is Google’s holding company Alphabet Inc., which is scheduled to release its earnings shortly after U.S. markets close. 

“Of all the names on the docket, Alphabet may [be] of greatest interest as it could provide a reasonable proxy for business spending in to the near future given its dominance of the online ad business,” Boris Schlossberg of BK Asset Management wrote in an investor note prior to the company’s earnings release. 

Schlossberg warned a negative report from Alphabet could hint at other digital leaders, such as Facebook, taking a huge hit and tech stocks dragging the Nasdaq down. “The [Nasdaq] was the leader of the prior bull market but is now a laggard as investors fear that the days of torrid growth for high tech are over,” he wrote.

Flickers of a reviving economy could be observed Tuesday in earnings reports from manufacturing leader 3M — which makes the N95 respirator masks used by health care workers fighting the pandemic — as well as beverage giants Keurig Dr. Pepper and PepsiCo.

Very few earnings reports so far have been positive, with even normally recession-resistant companies IBM and Coca-Cola showing significant declines in revenue. 

Further, most companies have withdrawn their 2020 guidance in the face of uncertain deadlines for social distancing and the possibility of a resurgence of the respiratory disease Covid-19 in the fall.

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