Posted in: Market NewsOpinion
Published:
March 15, 2020 7:00 PM UTC

Consumer Sentiment Likely to Plunge as Coronavirus Drags Economy Toward Recession

The U.S. consumer sentiment index fell in March and is likely to plunge even more as the coronavirus threat continues to grow.

  • As coronavirus fear is rising, consumer sentiment is falling.
  • Economists expect consumer sentiment to keep plunging as coronavirus causes disruptions to the global economy.
  • Slower GDP growth is forecaste; the risk of a recession is rising.

Americans are expecting a dark economic outlook amid coronavirus panic, according to a survey of consumer attitudes released Friday by the University of Michigan.

Consumer sentiment is 11% above the average reading. | Source: Advisor Perspectives

Consumer views on the economy fell to 95.9 in early March, from 101 for the four weeks ending Feb. 25. That’s the lowest in five months.

Economists expect consumer sentiment to keep plunging in the coming months

The current reading only covers the first 11 days of March before a wave of bad news about coronavirus pushed the United States into crisis mode. That means the index could certainly plunge much more in the months to come.

Jim Curtin, chief economist of the survey, believes that confidence will decline further:

The data suggest that additional declines in confidence are still likely to occur as the spread of the virus continues to accelerate.

Gregory Daco, an economist at Oxford Economics, said:

If we look to the rest of the month of March, you’re going to see a combination of not just the expectations, but the current economic conditions fall, and that will lead to significant pullback in the final reading.

When authorities discovered the first cases of coronavirus in January, analysts didn’t think the virus would turn into a pandemic. But the events of the past few days have shown that coronavirus will last longer than expected. We will likely see massive disruptions in the weeks ahead.

Americans have to change the way they work and live as the virus is spreading throughout the country. Sports events are canceled, people work from home, schools are closed, travel to or from specific destinations is banned, etc.

Coronavirus fear spread through the stock market, which entered a bear market on Wednesday. Investors sold their stocks out of panic. Stocks rallied on Friday after Trump authorized emergency coronavirus funding, but we are not out of the woods yet.

Recession Is Possible As GDP Growth Slows Down

Andrew Hunter, senior U.S. economist at Capital Economics, expects slower GDP growth as a result of the coronavirus pandemic:

As a result, we now expect GDP to fall by 4% annualized in the second quarter and to stagnate in the third.

The last time the economy contracted that much was in 2008-09 during the worst of the financial crisis. The U. S. economy slowed 8.4% in the fourth quarter of 2008 and 4.4% in the first quarter of 2009.

Capital Economics also cut its GDP estimate, forecasting 0.6% growth instead. Its previous forecast was 1.8%. Several economists have lowered their growth forecasts for the second quarter and beyond, but this prediction is the most pessimistic so far.

Moody’s Analytics’ chief economist Mark Zandi thinks it’s more likely than not we’ll see a recession in 2020. On Monday, he increased the chances of a downturn to about 65%, up from 50-50 just a week ago.

Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com.

This article was edited by Sam Bourgi.

Last modified: March 15, 2020 4:12 PM UTC

Stephanie Bedard-Chateauneuf @SBChateauneuf

Stephanie has been writing about stocks and financial markets for several years. Based in Canada, she has written for The Motley Fool and Seeking Alpha. She received an MBA in finance and worked for National Bank of Canada. Email: stephanie.chateauneuf@gmail.com

Show comments