June 30, 2020

Consumer confidence is coming back, but remains lower than it was pre-pandemic. And whatever recent optimism there is may be waning, particularly in areas recently hard-hit by the coronavirus. And recent unemployment data may have been inflated by the rollout of new policies.

1. June consumer confidence stronger than expected, but still depressed

   • The Conference Board's Consumer Confidence Index rose 12.2 points from May to June, to 98.1.

   • 6.5% of respondents said they plan to buy a home in the next six months, in line with averages over the last decade.

2. Some indicators suggest a slowdown in the recovery

   • The recovery in consumer spending activity retreated in the last week, according to JP Morgan Chase.

   • Measures of restaurant attendance and transit usage have slid in regions with recent upticks in case volume.

3. Recent jobless numbers were likely inflated

   • Backlogs in the processing and rollout of the Pandemic Unemployment Assistance program may have led to overstated counts of claims for jobless benefits.

   • Arizona, Ohio and Pennsylvania are among the states where the difference is most pronounced, according to Bloomberg.

So what?

Today's better-than-expected read on June consumer confidence was the latest indication that consumers seem to believe the worst is over with, and are beginning to look at what comes next. After falling to a 3.5-year low in March, the report's forward-looking Expectations Index – representing consumers' collective outlook for the next six months – now sits just below pre-pandemic, February levels. The share of respondents who said they plan to buy a home in the next six months rose 0.5 percentage points from May to 6.5%, in line with averages over much of the last decade. Reopening progress and fiscal support have clearly helped buoy consumer optimism, but concluding that things are anywhere close to "back to normal" is a major stretch. The index's measure of present conditions did improve from May to June, but remains 80.5 points (nearly 50%) below March's levels. Just 15.7% of respondents said they expect to fly somewhere for a vacation in the next six months, down 3.3 percentage points from April and 12.7 points from the end of 2019. And both the labor market outlook and household income prospects have only improved slightly from declines earlier in the spring.

And after steadily recovering for the better part of two months, other, higher-frequency indicators of consumer behavior are showing signs of flattening and even falling, particularly in areas which have recently seen a surge in coronavirus case counts. The number of people attending dine-in restaurants has fallen by 20% in both Arizona and Texas over the past couple weeks, after consistently rising beginning in mid-May — especially in large cities including Houston and Phoenix. Measures of mobility – as measured by Apple – in those parts of the country show similar recent declines. But the deceleration or even reversal of recent improvements is not limited to recent virus hotspots. A report from JP Morgan Chase found that overall spending on Chase credit and debit cards slipped last week, and is now 12% below levels from a year ago. Yes, Chase's spending measure remains well-above low points touched in late March, but the wavering recovery is definitely something to keep an eye on. It remains unclear how or whether changes in these higher-frequency metrics will correlate with housing market activity.