U.S. consumer confidence rises, but COVID-19, unemployment linger
WASHINGTON Consumer sentiment in the United States perked up in early June as households cheered the reopening of businesses and a surprise rebound in hiring, though they did not expect a significant improvement in the economy amid fears of a resurgence in COVID -19 infections.
The survey from the University of Michigan on Friday is broadly in line with economists’ expectations that the recovery from the recession would be a long slog. The National Bureau of Economic Research, the arbiter of U.S. recessions, declared on Monday that the economy slipped into recession in February.
“While uncertainty about the future is beginning to ease, it is still higher than it was at anytime during the Great Recession,” said Joel Naroff, chief economist at Naroff Economics in Holland, Pa., “That raises questions about the willingness to purchase big-ticket items. If we don’t see that happen, the recovery will be slower than hoped for.”
The University of Michigan’s consumer sentiment index increased to a reading of 78.9 from 72.3 in May. It said “few consumers anticipate the re-establishment of favourable economic conditions anytime soon.” Two-thirds of consumers in the survey expected “bad times financially” during the year ahead, while half anticipated a “renewed downturn.”
In addition to concerns about a second wave of COVID-19 infections, consumers also worried that persistently high unemployment could slow the economic recovery. Though the economy created 2.5 million jobs in May, an employment gap of nearly 20 million remains since March when non-essential businesses were shuttered.
Layoffs are more than double their peak during the 2007-09 Great Recession.
Economists polled by Reuters had forecast the sentiment index would rise to 75 early this month.
While the University of Michigan survey showed consumers’ inflation expectations easing slightly in June, they remained above their PRECOVID-19 shutdown levels. Consumers’ one-year inflation expectations slipped to three per cent from 3.2 per cent in May. Five-year inflation expectations dipped to 2.6 per cent this month from 2.7 per cent.
Consumers’ inflation perceptions in the past months have been driven by higher food prices, amid meat shortages caused by COVID-19 outbreaks at processing plants.
“That provides some reassurance that the recent plunge in prices for travel-sensitive services like airline fares and motor vehicle insurance will not lead to a more widespread period of falling prices,” said Andrew Hunter, a senior U.S. economist at Capital Economics.
Deflation fears were further assuaged by a separate report from the Labor Department on Friday showing import prices rose one per cent in May, the largest gain since February 2019, after falling 2.6 per cent in April. Import prices, which exclude tariffs, were driven by higher costs for petroleum products and food.
The government reported this week consumer prices falling moderately in May and a solid rebound in producer prices. Deflation is a decline in the general price level, which is harmful during a recession as consumers and businesses may delay purchases in anticipation of lower prices.
“These gains should support June increases for CPI and PPI,” said Mike Englund, chief economist at Action Economics in Boulder, Colo. “Trade prices should rise further in June with oil prices, alongside a lift from a drop-back in the value of the dollar, though we have an ongoing headwind from demand destruction with global shutdowns.”
The Federal Reserve, which tracks the core personal consumption expenditures price index for its two-per-cent inflation target, sharply lowered its inflation projections on Wednesday. The U.S. central bank projected core inflation rising one per cent this year and picking up to 1.5 per cent in 2021. Back in December, it forecast inflation at 1.9 per cent this year and two per cent in 2021.
In May, prices for imported fuels and lubricants surged 20.5 per cent after declining 31 per cent in the prior month. Petroleum prices rose 21.7 per cent after plunging 32.6 per cent in April. Imported food prices rebounded 2.2 per cent last month after dropping 1.6 per cent in April.
Excluding fuels, import prices gained 0.1 per cent following a 0.5-per-cent drop in April. The cost of goods imported from China was unchanged in May. Prices declined one per cent year-on-year, the smallest drop since March 2019.
The government also reported that export prices rose 0.5 per cent in May as higher prices for nonagricultural products offset lower prices for agricultural goods. That followed a 3.3-per-cent drop in April. Export prices fell six per cent on a year-on-year basis.