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June 26, 2020 Blog 1 min read

Consumer sentiment is improving, but regional differences in COVID-19 containment and the economic impact are significant.

June 2020 Consumer Sentiment Chart

The University of Michigan’s Consumer Sentiment Index came in at 78.1 for the latter half of June, suggesting a slight deterioration since the preliminary result released earlier in the month.  Even so, sentiment clearly improved in the past month as restrictions were lifted across a large portion of the country. Economists had expected a bit more improvement, but new outbreaks across the country have raised questions about the near-term outlook. 
 
On a positive note, regions that had been hit especially hard earlier this year are showing meaningful signs of improvement, allowing for a gradual lifting of various restrictions on movement and business activities.  Not surprisingly, the collective mood in those areas is improving. 
 
Conversely, parts of the South and West are only now seeing the first wave of the virus begin to really take hold.  In those regions where cases are now rising rapidly and the public health threat has become much more apparent, sentiment has unsurprisingly turned negative. 
 
More broadly, evidence that the economy may have already bottomed provided not only a boost to the stock market, but also the general mood of consumers. The surprising surge in retail sales and payrolls in May were both very positive signs, but it is important to note that these gains are coming off what has been at times unprecedented lows in economic data.  
 
This does not discredit the recovery by any means but shouldn’t be overlooked as it will likely take an extended period of time for the economy to fully recover. Layer in potential risks on the horizon, such as a resurgence of new virus cases or renewed tensions between the U.S. and China, and the road to recovery becomes a potentially bumpy ride. 
 
The bottom line is that the path back to a strong economy is not without challenges. Uncertainty is still a key watchword, and relief that some of the hardest hit areas are seeing improvement only tells part of the story. The first wave is still making its way across the country, and the risk of a second wave is still very real. Improving consumer sentiment is an understandable development. Sentiment is still fragile and could easily experience another step back as parts of the country that had not been significantly affected now grapple with COVID-19 outbreaks, policies intended to reduce the public health risk, and the resulting economic fallout. 

 

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