A key metric of consumer sentiment saw a dramatic decline in early August as the delta variant of Covid-19 heightened fears over the course of the economy, the University of Michigan said on Friday.
The consumer sentiment index fell to 70.2 in its preliminary August reading. That is more than 13% less than the July result of 81.2 and below the 71.8 mark in April 2020, which was the lowest value in the pandemic era.
It was the lowest value for the metric since 2011. Economists surveyed by Dow Jones expected a value of 81.3 for August.
And a sudden drop of this magnitude is extremely rare for the index.
“Only six other polls have seen major losses in the sentiment index over the past half century, all related to sudden negative changes in the economy,” said Richard Curtin, chief economist for consumer polls for the University of Michigan, in a press release. Two of these major monthly moves were April 2020 amid the pandemic and October 2008 during the financial crisis.
A shopper visits Macy’s flagship store in New York on May 20, 2021.
Eduardo Munoz | Reuters
The dramatic decrease is due to the fact that the Delta variant of Covid-19 spread rapidly in the United States, causing some states and cities to reintroduce mask requirements and other health restrictions. Hospitals in many southern states are reporting a shortage of beds to treat patients.
Health concerns could lead to a short-term decline in consumer confidence that could reverse if the situation stabilizes, Curtin said.
“Consumers have correctly argued that the economy will deteriorate over the next few months, but the extraordinary surge in negative economic valuations is also reflecting an emotional response, largely out of disappointed hopes that the pandemic would soon end,” Curtin said. “In the coming months, consumers are likely to return to more reasonable expectations and move to absolute optimism with control of the Delta variant.”
The consumer sentiment index is only a preliminary data point. Other recent economic data, including weekly jobless claims, suggests continued economic recovery.
Become a smarter investor with CNBC Pro.
Get stock picks, analyst calls, exclusive interviews and access to CNBC TV.
Sign in to get started Try it for free today.