Coronavirus Could Cause a Bigger Fall in Consumer Confidence Than the Great Recession

At the beginning of 2020, consumer confidence was on strong footing — but the coronavirus pandemic could send it spiraling downward, according to The Conference Board.

For the first quarter of the year, The Conference Board’s Global Consumer Confidence Index reduced by just one point, falling to 106 from 2019 Q4’s historic high of 107. However, the research group said that it expects “significant declines” to come in the second quarter, spurred by the economic turmoil borne of the coronavirus crisis. Notably, China was excluded from The Conference Board’s Q1 report due to the country’s COVID-19 containment efforts.

The Conference Board predicts that COVID-19 will precipitate a larger decline in global consumer confidence than the Great Recession of 2008–2009, due to more uncertainties surrounding the duration of the crisis and the spread of the virus. Between mid-February and mid-March, the U.S. has seen a 12.6-point drop in consumer confidence, according to the research group.

The vast majority of Americans are currently living under stay-at-home orders, and nonessential businesses, including fashion and footwear retailers, have been ordered to temporarily close. Over the last four weeks, over 22 million Americans have filed jobless claims as companies furlough and/or lay off workers, nearly wiping out all gains made since the 2008 financial crisis.

The U.S. government passed the $2.2 trillion CARES Act in late March, with hopes of protecting American workers and injecting cash into the economy by issuing stimulus checks for individual citizens, expanding unemployment benefits and allowing mortgage deferrals for individuals and landlords. But consumer confidence is still likely to “significantly” fall across the board in the coming months, The Conference Board forecasts.

“While certainly helpful, the policy actions being taken in most economies, even wage subsidies for employers and direct cash handouts for workers, will inadequately sustain spending and buoy consumer confidence in the short term,” said Elizabeth Crofoot, senior economist at The Conference Board. “Coupled with escalating fears about continuing everyday activities and second-wave outbreaks, we anticipate significant declines in consumer confidence across all regions through at least the second quarter of 2020.”

Ahead of the pandemic, consumers reported an increasingly positive outlook about their personal financial situations, according to The Conference Board. Of 63 markets surveyed, 60% saw an improvement in personal financial sentiment in Q1, versus just 34% the previous quarter. This may have “cushioned some of the initial blow” of the coronavirus pandemic, The Conference Board says, but it’s probably “not enough to offset the bigger impacts as the crisis evolves.”

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