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The University of Michigan’s consumer sentiment index saw the largest monthly drop ever according to the latest report, tanking 20.3% to just 71. The current conditions index fell over 30%, reflecting the dire economic circumstances now affecting hundreds of millions of Americans, with tens of millions out of work and businesses still in shut-down around the country.

Key Takeaways

• Consumer sentiment fell to 71 according the UoM sentiment index, dropping an historic 20.3%.
• Sentiment had already fallen near a 3.5 year low in March.
• Survey director says “be prepared for a longer and deeper recession rather than the now discredited message that pent-up demand will spark a quick and robust economic recovery.”
• Current conditions fell below 100 to 72.3 vs. 112 expected.

Consumer sentiment is an an all-time low in the US due to the drastically escalating economic circumstances stemming from the coronavirus pandemic. 16.8 million Americans have applied for unemployment benefits in the last three weeks, with the rate of unemployment now likely above 10% vs. 3.5% two months ago, near the lowest rate in 50 years.

Sentiment fell as coronavirus infections rapidly increased in the US, now the world’s epicenter for the virus outbreak, killing over 14,000 Americans to date. Current conditions fell to an historic low, and expectations fell 9.7 points to 70. The economy is now almost certainly in a recession, with the labor market in free fall, halting the 11-year period of record-breaking economic expansion in the US.

Of the most stunning detail in today’s sentiment report was the historic plunge in “buying conditions”. Consumers cited income uncertainty as a rationale for postponing purchases of large household goods – we can only hope this turns around as the economy gets back on its feet. pic.twitter.com/qWb8ST8BYn

— Steven Rattner (@SteveRattner) April 9, 2020

The responses to the April survey were gathered from March 25 to April 07, covering the period during which jobless claims hit all-time highs far beyond anything the country has seen before. Unemployment was mentioned spontaneously by two-thirds of respondents. 36% reported improved finances, down from the all-time high of 58% in February.

Consumers forecast an average drop of 0.6% of their incomes in the coming year. The survey did indicate the sentiment that the impact of the recession created by the coronavirus would be temporary. However, UoM survey director Richard Curtin does not share this view.

Expert Outlook

 “Consumers need to be prepared for a longer and deeper recession rather than the now discredited message that pent-up demand will spark a quick and robust economic recovery,” said Richard Curtin, director of the survey, in a statement. “Sharp additional declines may occur when consumers adjust to a slower expected pace of the economic recovery.”

“The free-fall in confidence would have been worse were it not for the expectation that the infection and death rates from COVID-19 would soon peak and allow the economy to restart. As noted in last week's special report, anticipating a quick and sustained economic expansion is likely to be a failed expectation, resulting in a renewed and deeper slump in confidence.”

Market Reaction

Gold prices have seen strong upward momentum throughout today’s session. Spot gold last traded at $1,681.02/oz, up 0.97% with a high of $1,684.36/oz and a low of $1,645.08/oz. Gold prices have traded higher following reports of staggering job losses and unemployment claims throughout the US last week, above expectations and nearly matching the all-time high seen the week before.

A multi-trillion dollar Fed stimulus package is likely to lead to US dollar inflation in the future, creating a bullish environment for gold, although the latest PPI report indicates a strong US dollar in the short-term. News of a ceasefire in Yemen and truce talks between Russia and OPEC talks regarding the ongoing oil price war may have offset some of the upward momentum by reducing the general geopolitical risk seen worldwide.