What's bothering US consumers?

·Head of News

Mon, Aug 16, 2021, 2:02 AM2 min read

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Monday, August 16, 2021

Consumer sentiment falls off a cliff in August

On Friday morning, our Morning Brief newsletter noted that research from Bank of America suggested a consumer slowdown is likely to be reflected in July's retail sales report, due out Tuesday morning.

Just hours later, hard data on how consumers feel about their economic position (as of mid-August) showed sentiment fell off a cliff during the month.

The University of Michigan's preliminary reading on consumer sentiment for August showed a drop of 11 points on the headline index to a reading of 70.2, the lowest reading since the pandemic started and the overall lowest level for the series since 2011. This decline was one of the largest on record for the index, which dates back over 50 years.

"[The] only larger declines in the Sentiment Index occurred during the economy's shutdown in April 2020 and at the depths of the Great Recession in October 2008," said Richard Curtin, chief economist for the University of Michigan's survey of consumers.

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."

So when we ask what is bothering consumers, Curtin's commentary suggests "all of the above" is an appropriate answer. 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.

Combine this with inflation playing a larger role in daily life than it has in decades, and the prospects for additional consumer stimulus standing at right around zero, and it's not hard to see how an on-the-ground assessment of the economy has shifted rapidly in recent weeks.

And in addition to the government's July retail sales report on Tuesday, this coming week will feature earnings results from a number of major retailers, notably Target (TGT) and Walmart (WMT). These reports will give us a read on how these giants made it through the spring's enthusiastic economic re-opening.

But analysts will also be keen to get updates on how these retail giants have seen customer behavior change in recent weeks. And recent data suggests these executives will have a lot to say.

By Myles Udland, reporter and anchor for Yahoo Finance Live. Follow him at @MylesUdland