The latest print from the University of Michigan consumer sentiment survey has shown a fall
of almost 12 points, the largest drop since 2008, and takes us back to 2016 levels. Unlike the
last three recessions, which had seen consumer sentiment fall into each one (top-left chart),
consumer sentiment had been rising into 2020. In the top-right chart, we see that the negative
reaction to today’s shock has eclipsed that of prior exogenous shocks. The US consumer was
resilient across each shock, except in 1990, where this shock coincided with a recession. Prior to
the coronavirus outbreak, we wrote about emerging headwinds for the US consumer as rent and
medical inflation were gathering pace and our leading indicators for wage growth were rolling
over. Therefore, unlike previous shocks, we do not expect US consumer resilience to hold.

Fiscal stimulus in the form of cash handouts may help ease household finances at the margin,
but given the unprecedented surge in initial jobless claims, we do not expect this to be a silver
bullet. In the last chart, we see global equity prices fall as fewer countries print rising consumer
confidence numbers. As we noted in our Thematic piece, Recessions and Shocks – Thematic
March 20th 2020, markets typically wait for an improvement in the underlying shock before
rallying. We would expect this to coincide with bottoming consumer-confidence numbers.

Source: Bloomberg, Macrobond and Variant Perception