Should We Be Worried About Consumer Spending?


The (bad) economic news: Newly released research from Bank of America suggested a major consumer slowdown in August. Not long after, a report from the University of Michigan indicated that consumer sentiment very recently plummeted. To be specific, the headline index dropped 11 points to a reading of 70.2. Not only is that the lowest rating since the start of the pandemic, it is also the overall lowest since 2011. Moreover, the 11 point drop was one of the worst on record. 

The big why: Although the world over wants to be unquestionably done with the COVID pandemic, confidently boarding airplanes, sending children back to in-person learning (unmasked), and living with the overall sentiment that the worst is behind us, the Delta variant has dashed those hopes. According to Richard Curtin, chief economist for the University of Michigan’s survey of consumers, “even absent highly restrictive new measures related to the spread of the virus, delayed return-to-office plans, mask mandates in schools, and potentially altered travel plans all serve as reminders that the virus remains with us.” 

Curtin added: “[The] losses covered all aspects of the economy, from personal finances to prospects for the economy, including inflation and unemployment. There is little doubt that the pandemic’s resurgence due to the Delta variant has been met with a mixture of reason and emotion. Consumers have correctly reasoned that the economy’s performance will be diminished over the next several months, but the extraordinary surge in negative economic assessments also reflects an emotional response, mainly from dashed hopes that the pandemic would soon end.”

Other key factors: Simply put, inflation is a bigger deal than it has been in decades. Moreover, there’s likely no additional consumer stimulus on the radar. Together, the dip in consumer confidence, jump in inflation, and lack of stimulus resulted in lots of cancelled shopping plans in August.
Additional indicators: Experts are keeping a close eye on earnings reports expected from major retailers, including Target (TGT) and Walmart (WMT), which will offer additional insight into customer behavior and sentiment.


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