Consumer sentiment plummeted in March, nearing one of the biggest monthly drops on record as the coronavirus pandemic shutters businesses and forces workers to stay home.
The University of Michigan index of consumer sentiment, a key indicator of how Americans feel about the economy and spending money, dropped 11.9 points from February to 89.1.
“The steepest monthly decline was barely larger at -12.7 Index-points in response to the deepening recession in October 2008, and there were two declines of 12.2 points in response to the 1980 recession and Hurricane Katrina in September 2005,” said Richard Curtin, the survey’s chief economist, in a statement.
Much of the decline, Curtin noted, took place toward the end of the survey period, setting the stage for a potentially historic drop in next month’s reading.
“If the Consumer Sentiment Index were to stabilize at its most recent seven-day average, it would imply an additional decline of nearly 18.2 Index-points in April, which would amount to a record setting two-month decline of 30.1 points,” he said.
Consumer spending accounts for roughly two-thirds of gross domestic product, meaning declines in sentiment can have a profound effect on the overall economy.
Most economists say the U.S. has already entered a recession, and could face a more prolonged period of economic instability depending on the response to the coronavirus outbreak. More than 3.2 million Americans filed for unemployment benefits last week, setting a new record, while stock markets have entered bear territory.
“Today’s dramatic drop in the Consumer Sentiment survey shows that Americans have shifted into recession mode from economic optimism just one month ago,” said Robert Frick, an economist with Navy Federal Credit Union, in a statement.
Consumers, he said, were likely to buy fewer goods and look for less-expensive options when they do shop, while putting off purchases of durable goods such as appliances or furniture.
“Given we are just at the cusp of recession, confidence and sentiment numbers will continue to fall until the economy show signs of rebounding, hopefully later this year,” he added.