At the beginning of 2020, consumer confidence was on strong footing — but it suffered a record drop in the second quarter amid the coronavirus pandemic.
For Q2, The Conference Board’s Global Consumer Confidence Index fell to 92 from a near-historic high of 106 early in the first quarter. (Readings below 100 are considered negative.) The 14-point drop marks the biggest quarterly decline since the index launched in the first quarter of 2005 — and it’s almost twice the largest dip seen during the 2008-2009 financial crisis.
On a global scale, consumer fears about declining job prospects, coupled with increasing anxieties about personal finances, drove down confidence for the quarter, per The Conference Board. In major markets including the U.S., the U.K., France and Germany, worsening job outlook is what precipitated the decline in confidence levels, the think tank said.
“Early signs of economic rebound in several markets do not necessarily portend a quick recovery in consumer confidence in the coming months,” said The Conference Board chief economist Bart van Ark. “Countries vary in their approaches to containing the pandemic, managing the direct impacts on employment and income, and the trust populations have in their governments, which all influence consumers’ confidence that a recovery will take hold.”
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According to The Conference Board, consumer confidence is more resilient in markets where preventative COVID-19 measures were rapidly rolled out, such as in South Korea, Taiwan and Germany. In countries such as the U.K., where delayed measures may have caused greater job losses, and in the U.S. and Mexico, where the reopening of some state economies has coincided with rising COVID-19 cases, The Conference Board predicts consumer confidence could remain dampened for a longer period of time.
Three key factors will determine the strength of the recovery: increase in new cases and deaths; COVID-19’s economic impact on jobs and household incomes; and citizens’ trust in their government to mitigate the virus’ effects, the think tank projects.
“Without enhanced public trust in government to mitigate the risk of second-wave outbreaks, consumer confidence will remain depressed over the coming months,” said Elizabeth Crofoot, senior economist at The Conference Board. “Consumers will stay cautious about pursuing out-of-home activities, while continuing to feel insecure about their job prospects and personal finances.”
Due to months of government-mandated store closures, along with the decline in discretionary spending, the pandemic has been a challenging time for nearly all of retail. To maintain cash flow, many companies chose to furlough a portion of their workforce, as well as to reduce executive pay and tap revolving credit facilities. Some companies, including Macy’s, Nordstrom and Nike, have also chosen to lay off a portion of their corporate workforces. What’s more, numerous boldface American retailers — such as JCPenney, J.Crew and Neiman Marcus Group — have filed for Chapter 11 bankruptcy protection since May.