Some polls last week showed indications that the economy could soon cool down as the delta variant of COVID-19 has created uncertainty about what lies ahead. The University of Michigan’s Consumer Sentiment Index fell to 70.2 in August, down from 81.2 in July, a decrease of 13.5%. More importantly, this number is below the low seen last year during the pandemic, which was 71.8 in April.
The index has seen only six more losses since 1978, all of which were accompanied by sudden negative changes in the economy. Two of these large percentage declines have occurred in the past 13 years, as last year’s pandemic caused the index to fall 19.4% and the depths of the financial crisis in October 2008 resulted in an 18.1% decline. Why is that important? The consumer accounts for around 70% of GDP, so an insecure consumer bodes ill for economic growth. Interestingly, retail sales in July were down 1.1% from June since the Consumer Sentiment Index was released.
There was another 500 small business survey conducted for the Wall Street Journal by Vistage Worldwide Inc., an enterprise coaching and peer counseling company. The survey showed that small business confidence in August has declined since the spring as cases of the highly transmissible Delta variants surge across the country.
Thirty-nine percent of small business owners expect economic conditions to improve in the next 12 months, up from 50% in July and 67% in March.
Obviously, the uncertainty created by the delta variant is the main reason for the sudden drop in measures. However, there are a few other challenges that affect both businesses and consumers.
After inflation did not play a role for decades, we have seen prices rise since the economy reopened. The July value was 5.4% above the previous year, which has weakened somewhat compared to the previous month. However, certain items like gasoline are up 40% which is clearly having a negative impact on consumers. Food prices have also risen significantly, and these two together make up a significant portion of consumers’ monthly budgets. Businesses are also affected by inflation, as it drives up goods costs and puts workers under wage pressure. In addition, the median single-family home sales price nationwide rose 22.9% to $ 357,900. This sharp rise in home prices has priced out more and more buyers despite record low interest rates.
Some other factors, out of order, that can negatively affect these surveys include:
Rising national debt
Our national debt is more than $ 28 trillion. That’s $ 86,000 per person in this country and a whopping $ 227,000 per taxpayer. The rising national debt is not a new problem, but Congress seems to be irresponsible today to spend money regardless of our national debt.
The termination of the Afghanistan withdrawal has worried national security over future terrorist issues. The Taliban are jihadists and the terrorism emanating from this part of the world will be back in the game. Added to this is the Chinese aggressiveness in Hong Kong and in the South China Sea, as well as Russia’s continued desire to increase its presence. Finally, the way we pulled out of Afghanistan raises concerns among our allies as to whether or not the US will be there for them.
I wonder how is Israel and Taiwan feeling?
The police divide and the rise in violent crime
The main task of our federal, state and local governments is the safety of their citizens. With violent crime on the rise, citizens are right to be concerned about their safety, especially in larger cities.
There are obviously other factors that affect how people think about their future. The foregoing represents some of the most important factors that affect people’s feelings. There is a lot going on right now that affects us all and how we are feeling and clearly some of the factors are negative right now, according to the polls. Are these harbingers of an economic downturn? Only time can tell.
Jeff MacLellan is retired from Landmark Bank. He has worked in banking for 37 years and has followed local economic indicators since moving to Colombia in 1987.