• External Contributor

Muted Recessionary Decline

Why has consumer sentiment remained largely unchanged since April? The University of Michigan’s Consumer Sentiment Index reached a cyclical peak in February, which is identical to NBER’s cyclical peak announced in June. The Sentiment Index then plunged by nearly one-third in just two months. GDP also posted a quarterly decline of nearly one-third in the 2nd quarter of 2020, while the surging unemployment rate quadrupled from February to April. News about the economy remained quite unfavorable in succeeding months, along with ending payments under the CARES act as well as steeply rising covid19 infections and deaths. None of these developments in the past six months caused consumers to become more pessimistic about the economic outlook than they were in April. As depicted in the chart, the April low in sentiment was not nearly as pessimistic as at the recessionary lows in the two most severe recessions that occurred in 2008 (55.3) and 1980 (51.7). Needless to say, the lack of further declines may simply reflect that the current downturn is hardly over, and like the prior two severe downturns, further declines may still follow.

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