Consumer confidence during the pandemic

Business cycles with two distinct phases, peaks and troughs are usual phenomena in an economy. Growth is aligned with the expansion phase and thus attains the peak yet in the contraction phase the economy experiences unemployment, negative growth and multifarious malaise and without corrective measures ultimately reaches the troughs. Though it is called cycles; the regular periodicity is absent in economic upswings and downswings. The circular flow of income addresses interactions between the product and the factor markets; contraction is manifested by a lean flow between them. Governments use appropriate monetary and fiscal policies to tame the economy in the desired direction when an economy is in the contraction phase. There are both examples of uninterrupted growth and contraction in an economy. The period of Great Moderation in the US economy, the average nine per cent of growth in the Chinese Economy and the average 7 per cent growth of the Bangladesh economy are some of the examples. Again, the Great Recession during 2007-10 and the Covid-19 pandemic all over the world illustrate simultaneous contraction accompanied by loss of jobs and poor consumer confidence.

Consumers are the main driving force in the process who as labour/management play a dominant role in economic activities. Thus, consumer spending constituting over 65 to 70 per cent of GDP is the most vital component through which peaks and troughs creep in an economy. Expectation plays an important role in the whole process and economists designed the Consumer Confidence Index to calibrate the status quo of the economy. Thus, consumer confidence is low when there is negative growth in the economy; unemployed people perceive uncertainty in job prospects and reduce their demand. The overall effective demand drops that ultimately accentuates the downturn of the economy. Consumption of durable goods —such as houses, automobiles, appliances, furniture and electronics and nondurable goods serves as an indicator of consumer spending though capital spending is also considered as consumption. Business spending spur economic growth but with bleak business optimism cutbacks accelerate economic downturn. Often the demand for a single commodity may trigger demand in many allied sectors such as an increasing housing demand may trail several demands in household allied industries including electronics equipment and consumer durables.

Data on consumer confidence are available for 74 four countries in the webpage of the Global economy.com during the Covid-19pandemic period. Consumer confidence is positive for seventeen countries but only five out of seventy four countries; China, Malaysia, Norway, Vietnam and UAE show marginal improvement. The countries with positive but less than 100 are USA, Singapore, Qatar, Pakistan, Norway, Malaysia, Canada, Kazakhstan and Nigeria. A negative value such as -10 indicates that consumer confidence has dropped by 110 per cent, a positive value such as 70 indicates that consumer confidence has dropped by 30 per cent and a positive value such as 140 indicates that consumer confidence has increased by 40 per cent. Comparison of the data revealed that consumer confidence has improved in China during the period October, 2020 to May. 2021 in the range of 5.5, the highest 127 being in February, 2021.

Among the European countries, only Norway could maintain the status quo in consumer confidence. Consumer confidence in the U.S increased to 129 in June, 2021 by 7 points from the previous months as vaccination drive gained momentum and the re -opening of businesses. “Consumers’ short-term optimism rebounded, buoyed by expectations that business conditions and their own financial prospects will continue improving in the months ahead.” The Conference Board’s who compile the index is optimistic on the trend though there are concerns with inflation expectation and the recent increased infection of the delta variant. The latest survey revealed a higher level of expectations on future income and job availability. The share of respondents with expectations that their income to increase in the next six months witnessed an increase of 20.6 per cent, the highest since February 2020. The story may be a little bit different with the New York States when $ 463 million federal aid in weekly unemployment assistance ceased to exist for about 800,000 people. “From the beginning of the coronavirus pandemic, New York City has been pummeled economically unlike any other large American city, as a sustained recovery has failed to take root and hundreds of thousands of workers have yet to find full-time jobs.”

The US topped the list in the Covid-19 deaths [ 652,699 ] and is followed by Brazil, India, Russia, United Kingdom and France. Consumer confidence index in all the countries was negative. The uncertainties in the job market owing to strict lockdown and inadequate social safety net might be the prime reasons. Among these five countries, India witnessed the worst scenario. The survey by the Reserve Bank of India [ RBI ] drew a bleak picture of the economy, “Consumer perception on the general economic situation, employment scenario and household income plunged deeper into contraction zone …; while expectations on general economic situation and employment scenario for the year ahead were also pessimistic.” CCI is not available for Bangladesh though there is reference in https://w.w.w.theglobaleconomy.com/rankings/consumer but this lacks crucial information.

CCI measures a range of consumer attitudes linked to certain behavioral norms including forward expectations of the general economic situation, financial positions and inclination to major purchase decisions. Indeed, there are a few subjective elements but certain important macro variables could make a dent in the consumer propensity. Inflation and interest rate influence consumer confidence through various channels. An anticipation of higher inflation works as a push factor in consumption with past savings; higher price level reduces the wealth effect and depresses consumer confidence. The Organization for Economic Cooperation and Development considers consumer confidence to be a leading indicator that provides qualitative information in monitoring the current economic situation and as a warning of turning points in economic activity. Indeed, the world economy is in the whirlwind of uncertainty due to pandemic and denting the economic activities that make sound and pragmatic policies ineffective. Consider the recent upsurge of delta variants in the Chinese economy with zero tolerance policy and the US probable debt default in October if Congress does not take action to raise or suspend the debt limit. “Once all available measures and cash on hand are fully exhausted, the United States of America would be unable to meet its obligations for the first time in our history. ”

The writer is the Treasurer and a Professor in the school of Business and Economics, United International University.