The last few weeks have seen a number of disappointing ‘soft’ data points in the US and the UK which seem to indicate that the continuing risk associated with the Delta variant is starting to impact consumer decision-making.

By ‘soft’ data we mean consumer confidence indicators, spending intentions and retail sales numbers as opposed to ‘hard’ data such as manufacturing output or GDP figures.

As discussed previously, it is possible that millions of micro decisions could end up having enough of an impact at the macro-economic level to throw all of our assumptions about the recovery out of the window.

SOFT DATA GETTING SOFTER

A fortnight ago, the US market was roiled by a sudden and unexpected drop in the University of Michigan’s consumer sentiment gauge, which instead of edging up from 81.2 in July to 81.3 as predicted, plunged to 70.2 points, its lowest reading since the end of 2011.

Consumers’ views on current conditions tumbled from 84.5 to 77.9, but even more concerning the measure of future expectations slid from 79 to 65.2 points. Many respondents cited Delta-related uncertainty and the potential for more lockdowns for the drop in confidence.

The latest UK consumer confidence survey from GfK was also disappointing, although not nearly as bad as the US survey, coming in at -8 instead of -7 points this month. Although a minus number looks bad, the survey was actually slightly lower during most of 2019 so it has actually recovered from its pandemic lows.

However, when people were asked about their personal financial situation over the next 12 months and their intentions to make a major purchase, both readings were lower than the previous month.

CONSUMER SPENDING SLOWS

Both US and UK retail sales have disappointed in the last few weeks for a couple of reasons. First, whereas out of necessity we spent money on ‘stuff’ rather than experiences during lockdown, since reopening people have reverted to pre-pandemic behaviour, blowing their cash on going out.

A survey of consumer activity by research consultancy the CGA covering the period after ‘Freedom Day’ on 19 July showed ‘more confident and varied behaviour than after the end of the first full national lockdown last July’.

The second reason for the fall-off in spending is demand has been brought forward. Many people made their big ticket purchases – be it a new sofa, home cinema system or a Peloton exercise bike – during lockdown last year, and they aren’t going to buy another one.

What economists and policymakers need to know is whether the recent dip in confidence and the knock-on effect on consumer spending is ‘transient’ – a word much used to describe inflation, another concern – or whether it presages a broader economic slowdown. 

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