Consumer sentiment in the U.S. is down to a three-and-a-half-year low due to the effects of the coronavirus and social distancing measures, and consumer spending is down as well, according to a report by Reuters.
Those two indicators have economists predicting the country will enter a recession.
A record number of Americans – 3.28 million – filed for unemployment benefits last week. The previous record was set in 1982, at 695,000.
Because of the damage that the coronavirus pandemic is doing to the economy, the Federal Reserve has been taking drastic measures, and Congress has approved a $2 trillion stimulus plan.
“People are struggling to understand the magnitude and duration of the economic shock from COVID-19,” said Chris Low, chief economist at FHN Financial in New York. “Job losses are the most vivid demonstration of the new reality. As the reality sinks in, confidence is likely to fall into the mid-50s by May.”
The University of Michigan Consumer Sentiment Index dropped to 89.1 this month, which is the lowest it's been since October of 2016. It was 101 in February; the drop is the biggest in over a decade.
Consumer expectations dropped to 79.7 this month from 92.1 last month. The University of Michigan said it would drop further due to higher unemployment and less household income.
The Commerce Department said that consumer spending was up 0.2 percent in February as people spent on electricity and gas. February was the third straight month of a 0.1 percent increase.
American stocks dipped after a brief rally caused by the upcoming stimulus bill. Economists predict that consumer spending will see a decline in Q1.
“Social distancing measures taken in response to the fast-spreading coronavirus, along with extreme financial market volatility, will take a severe toll on the main engine of economic growth,” said Lydia Boussour, a senior U.S. economist at Oxford Economics.