Some might be inclined to call it a “surprise”. I’d be tempted to characterize it as inevitable.
University of Michigan sentiment came in below expectations for July in the preliminary read on Friday, printing 73.2 against estimates for 79.
The range was 75 to 85 from 57 economists, so this missed even the most pessimistic forecast.
The accompanying color from the survey’s chief economist, Richard Curtin, is not encouraging. He does not mince words.
“Consumer sentiment retreated in the first half of July due to the widespread resurgence of the coronavirus. The promising gain recorded in June was reversed, leaving the Sentiment Index in early July insignificantly above the April low”, Curtin said Friday, adding that while it’s “not surprising that consumers need some time to reassess the likely economic impact from the coronavirus on their personal finances and on the overall economy… declines are more likely in the months ahead as the coronavirus spreads and causes continued economic harm, social disruptions, and permanent scarring”.
That, folks, is a downbeat assessment and it underscores the absolute necessity of Congress not fumbling the handoff from the CARES Act to whatever Mitch McConnell and Nancy Pelosi manage to come up with in terms of a compromise on the next relief package.
As documented in “End Of The Road: America’s Small Businesses Close For Good In New Lockdowns“, reinstated containment measures which have closed bars and restricted economic activity across a number of states, are causing some small business owners to throw in the towel, even after receiving Paycheck Protection Program grants.
This week brought still more evidence to support the notion that, at least in the near-term, additional curtailments aimed at stopping the spread are likely.
“Another aggressive fiscal response is urgently needed that focuses on financial relief for households as well as state and local governments”, Curtin went on to say. The figure (below) could look different going forward, and that would not be good news for the economy.
Investors largely looked through upbeat retail sales data on Thursday, opting instead to focus on the latest jobless claims numbers, which suggested the labor market is far from healed.
Curtin warns that even another aid package could be insufficient to sustain consumption.
“While financial relief is clearly needed for the most vulnerable households, that relief will not stimulate the extent of renewed consumer spending necessary to restore employment and income to pre-crisis levels anytime soon”, he cautioned on Friday.
Expectations for consumer prices moved higher both for next year and over the longer run, which, at least on a pessimistic interpretation, suggests some folks are pondering stagflation.
Curtin finishes with a dour flourish befitting of the most bearish analyst note.
“Unfortunately, there is little time left on the political calendar for Congress to act as the election season is about to begin in earnest”, he warns. “Without action, another plunge in confidence and a longer recession is likely to occur”.
Nobody tell stocks.
Haven’t the elites in the US read any one of the numerous accounts that describe what happens when people are hungry and don’t have work? Accounts that include governments not protecting and providing for the general welfare of the citizens? They’ve been too busy looting the last 30 years to read books, much less change and adapt.
This is all continuing to shape up as a recipe for systemic change. Should have happened in 2008-2009. Maybe now it will.
Don’t worry – Pompeo just rolled out a new policy focusing on human rights, and by human rights, the administration is specifically emphasizing property rights (and religious liberty).
In all seriousness, the summaries that Dalio has been writing are very instructive at a time like this. I still find it hard to imagine any sort of violent revolution or a major shooting war (optimistic bias and all that), but we need leaders to acknowledge that there is a severe need for a peaceful transfer of wealth (e.g. universal healthcare, UBI, infrastructure, etc.). That’s the least painful way out of the low growth/wealth inequality trap that we’ve created. I’m hoping the last 4 years, and more specifically this year, will be a time we look back on and say we’re glad we figured out how to get through this largely peacefully and we’re all in a better spot for it.