Consumer Confidence Compared to Q2 Job Growth

Since WWII, nothing has caught global attention and heightened economic fears quite like Covid-19. Many economies are at the brink of collapse, as companies struggle to stay afloat. World governments have imposed lockdowns and significant movement restrictions, leading to enormous losses for small and medium-sized businesses. Large businesses have not been spared either, with Chapter 7 filings and budget cuts leading to significant job loss. Producers and consumers alike are feeling the aftershocks of these changes.

It comes as no surprise that global consumer confidence in the second quarter of 2020 has declined from 106% in the first quarter of the year to 92%. The 13% drop is the highest drop to-date since the launch of the index in 2015, bearing witness to the consumer-level effects of the Coronavirus pandemic’s magnitude.

Consumer Confidence Compared to Q2 Job Growth

The Global Consumer Confidence Index is a global indicator of consumers’ confidence in their financial position, which informs their need to be active consumers. The index is based on a survey organized by The Conference Board and Nielsen. The Conference Board is an independent research and non-profit association aimed at providing data and information for improved decision making. Nielsen is a global data analytics company with offices in over 100 countries.

The recent drop in the Consumer Confidence Index is a result of growing job insecurity from job losses and business closures, travel bans, and restrictions; shutdowns in entire economic sectors, especially in entertainment, leisure, and travel. Decreased consumer spending because of strict budgeting measures has also contributed to this dip.

Drivers of Consumer Confidence

Three factors drive consumer confidence. These factors are:

Job prospects
Personal finances
Spending intentions

In Q2 of 2020, there was a significant decline in job prospects globally, more than any drop witnessed over past quarters. Personal finances were also drastically affected due to falling incomes, while there was also a drop in spending intentions as households cut-back on discretionary spending.

The index revealed an increase in the consumption of essential products and services concurrent with the decrease in discretionary spending. This decrease is likely due to many households over-stocking on crucial supplies in preparation for the effects of the Covid-19 pandemic. Also, most businesses where a lot of discretionary spending usually happens closed.

Consumers who normally eat out or order in chose to stay at home, as demanded by quarantine protocols. Similarly, travel was restricted, which meant that entertainment and nightspots, such as clubs and bars, were not open. With most people telecommuting, it was also unnecessary to purchase new clothes or fuel their cars—spending on utilities — gas heat, electricity, water, etc. — during the quarter increased because of stay-at-home regulations.

Investment wise, the survey revealed that most people surveyed stocks. This choice may have been informed by a decrease in stock prices. It is also probable that savvy investors whose incomes were not affected by the pandemic diverted discretional spending money into stocks and equities.

The Employment Trends Index

The Employment Trends Index for July 2020 shows growth between May, June, and July. However, the index is still down by almost 54% compared to the same period last year. The Employment Trends Index aggregates eight different factors to show the trends in the job market.

The index for July points to a struggling employment market, as companies and industries continue to adjust to the effects of the Covid-19. It shows that unemployment will continue to hit hard over the next few quarters, as most governments globally have yet to implement safety nets to cushion against the effects of job cuts.

Q3 Outlook

The depressing scenario, painted by the Second Quarter Consumer Confidence Index and job growth prospects, is attributed primarily to the Covid-19 pandemic, whose full impact is yet to be realized. This pandemic could not have been reasonably predicted in advance, and its mitigations had not been considered.

The Q3 Consumer Confidence and Job Growth Indices will largely be determined by how the pandemic pans out over the next few weeks. The curve is flattening in many countries, but new infections may also increase due to laxity and weak enforcement of recommended mitigation measures. There are constant worries that the second wave of infections may become more potent than the first, which could further dampen consumer confidence, and worsen job growth prospects. Already, most households are running low or have exhausted their emergency savings.

Conclusion

Stakeholders are watching governments closely to see how they will continue to respond to the effects of the pandemic on consumer confidence. Globally, some governments have introduced fiscal and economic measures towards mitigating the impact of Covid-19 on companies and their economies. These measures include tax breaks, government spending, and economic stimulus packages. For instance, Germany unveiled a €130 billion recovery package to help the country’s economy recover from the effects of the pandemic. If other governments adopt similar strategies, it will likely enhance consumer confidence and job growth prospects for Q3.