Consumer Confidence, Spending Take a Hit

However, short-term expectations for the economy and labor market improved
Author:
Publish date:
SeaSucker president Genevieve Casagrande says the pandemic can force businesses to examine expenses and make adjustments.  

SeaSucker president Genevieve Casagrande says the pandemic can force businesses to examine expenses and make adjustments.  

Consumer confidence showed a record decline in April as Americans coped with the covid-19 pandemic and the restrictions that state officials and federal guidelines imposed.

The Conference Board’s Consumer Confidence Index fell to 86.9 from a revised 118.8 in March. The April reading was the lowest since 2014. “Consumer confidence weakened significantly in April, driven by a severe deterioration in current conditions,” Lynn Franco, senior director of economic indicators at The Conference Board, stated in a press release. “The 90-point drop in the Present Situation Index, the largest on record, reflects the sharp contraction in economic activity and surge in unemployment claims brought about by the covid-19 crisis.

“Consumers’ short-term expectations for the economy and labor market improved, likely prompted by the possibility that stay-at-home restrictions will loosen soon, along with a reopening of the economy,” Franco added. “However, consumers were less optimistic about their financial prospects, and this could have repercussions for spending as the recovery takes hold. The uncertainty of the economic effects of covid-19 will likely cause expectations to fluctuate in the months ahead.”

A separate measure of consumer confidence also plunged in April by a record amount. The University of Michigan’s Consumer Sentiment Index declined to 71.8 from 89.1 in March. The index hadbeen at 101 in February, a 15-year high, before the novel coronavirus began to spread widely through the country.

“The Current Conditions Index fell by 29.4 points in [April] and by 40.5 points in [March and April], whereas the Expectations Index has posted smaller declines of 9.6 points in [April] and 22 points from February,” Richard Curtin, chief economist of the university’s Surveys of Consumers, stated in a press release. “While the decline in both indices indicates an ongoing recession, the gap reflects the anticipated cyclical nature of the coronavirus.”

As states reopen their economies, “more information will reach consumers about how reopening could cause a resurgence in coronavirus infections,” Curtin added. “Consumers’ reactions to relaxing restrictions will be critical, either putting further pressure on states to reopen their economies or exerting added pressure to extend the restrictions, even if it has negative consequences for economic prospects. The risks associated with these decisions are not equally balanced, with an incorrect decision to reopen having serious repercussions. The necessity to reimpose restrictions could cause a deeper and more lasting pessimism across all consumers, even those in states that did not relax their restrictions.”

Genevieve Casagrande, president of Bradenton, Fla.-based SeaSucker, a marine accessories manufacturer, wholesaler and retailer, says covid-19 had created mixed effects on her business. SeaSucker produces industrial-strength vacuum mounts that attach cup holders, rod holders and other accessories to boats without drilling holes.

“SeaSucker’s diversified sales channels have all been affected differently,” she said at the end of April. “While our e-commerce sales are growing considerably compared to last year, our wholesale and export channels are at a standstill. The overall effect on revenue has been fairly neutral, with our online, direct-to-consumer sales making up for the lack of sales elsewhere.”

To keep employees at full workloads, the company is now also producing personal protective equipment, such as face shields. And Casagrande is re-evaluating risk and growth opportunities for the long term.

Funding long-term growth opportunities, though, is a different story. “Due to financial constraints, we are forced to solely fund projects where we are able to see a return within a few weeks or months, rather than years,” she says. “Most of these long-term projects were more likely to see a higher return on investment but required a much heavier initial influx of capital. Reorienting to short-term gains will likely keep us in business, but it will keep us from realizing large growth, as well.”

Casagrande says 11 of her 24 sales, finance, R&D and operations employees are working from home. The manufacturing team is on split shifts with social distancing. “Small businesses like SeaSucker face an existential threat,” she says. “All of that said, that doesn’t mean there aren’t opportunities out there, and small businesses are in a unique position to take advantage of them. We can act more quickly and rapidly reorient budgets, employee time and equipment to take advantage of nascent and newfound opportunities. We can be the first there when a new opportunity arises.”

Casagrande says the economic indicators her company watches most closely are consumer confidence and consumer spending. “If consumers don’t have the money to spend, or don’t feel confident that they will continue to have disposable income to spend, the boating industry and all the small businesses that make up a large component of it will suffer,” she says. “Currently, many consumers are still spending money on non-essential goods from home. I fear that if the economy is opened prematurely, we may be forced into a second quarantine after a second spike in covid-19. If this occurs, I think consumers will lose the confidence in the economy and job security that is keeping them purchasing products online, like SeaSucker marine accessories.”

Nationally, the U.S. Department of Commerce reported that consumer spending plunged by 7.5 percent in March — the steepest monthly drop in records that go back to 1959. Personal incomes also fell, dropping by 2 percent as employers cut work hours or laid off workers. Millions have been furloughed.

Inflation remained tame. The Personal Consumption Expenditures Price Index fell 0.3 percent in March, and the core PCE index, which strips out volatile food and energy prices, fell to a yearly rate of 1.7 percent from 1.8 percent the previous month. The core PCE index is the Federal Reserve’s preferred inflation gauge.

The Conference Board’s Leading Economic Index fell 6.7 percent in March, to 104.2, in the largest decline in the index’s 60-year history. “The unprecedented and sudden deterioration was broad-based, with the largest negative contributions coming from initial claims for unemployment insurance and stock prices,” Ataman Ozyildirim, senior director of economic research at The Conference Board, stated in a press release. “The sharp drop in the LEI reflects the sudden halting in business activity as a result of the global pandemic and suggests the U.S. economy will be facing a very deep contraction.”

The Federal Reserve kept its benchmark interest rate in a range of zero to 0.25 percent at a meeting in late April, and Fed chairman Jerome Powell urged further fiscal stimulus from Congress to help the economy weather the effects of the coronavirus pandemic. President Trump signed a $2 trillion emergency relief package into law in late March. “Both the depth and length of the economic downturn are extraordinarily uncertain and will depend in large part on how quickly the virus is brought under control,” Powell said in a video press conference after the meeting.

Small business confidence fell sharply in March. The National Federation of Independent Business reported that its Small Business Optimism Index declined by 8 points, to 96.4, in the largest monthly decline in the history of the survey. “Small businesses are living through the coronavirus pandemic right now, and it’s hard to say what the severity of the disruption will be, but we do know they’re feeling the urgency,” NFIB chief economist William Dunkelberg stated in a press release. “It is vital that these businesses have access to federal funds that are made available through the CARES Act to keep the doors open on Main Street.”

In the housing sector, builder confidence in the market for newly built single-family homes nosedived. The National Association of Home Builders/Wells Fargo Housing Market Index dropped 42 points in April, to 30.

The NAHB stated that the decline was the largest single monthly change in the history of the index. It marked the lowest builder confidence reading since June 2012.

“This unprecedented drop in builder confidence is due exclusively to the coronavirus outbreak across the nation, as unemployment has skyrocketed and gaps in the supply chain have hampered construction activities,” NAHB chairman Dean Mon stated in a press release. “Meanwhile, there continues to be some confusion over builder eligibility for the Paycheck Protection Program. NAHB is working with the White House, Treasury [Department] and Congress to get the broadest builder participation possible.”

NAHB chief economist Robert Dietz added: “Before the pandemic hit, the housing market was showing signs of strength, with January and February new-home sales at their highest pace since the Great Recession. To show how hard and fast this outbreak has hit the housing sector, a recent poll of our members reveals that 96 percent reported that virus-mitigation efforts were hurting buyer traffic.”

Sales of new single-family homes fell 15.4 percent in March, to a seasonally adjusted annual rate of 627,000 units, according to the Commerce Department. The drop was the biggest in more than six and a half years, and further declines are considered likely as the pandemic continues.

The National Association of Realtors reported that sales of existing homes dropped 8.5 percent to a seasonally adjusted annual rate of 5.27 million in March. “Unfortunately, we knew home sales would wane in March due to the coronavirus outbreak,” Lawrence Yun, the NAR’s chief economist, stated in a press release. “More temporary interruptions to home sales should be expected in the next couple of months, though home prices will still likely rise.”

Although sales declined, home prices remained strong. The median existing-home price in March was $280,600, up 8 percent from March 2019, as prices increased in every region of the country. The NAR reported that the price increase marks 97 straight months of year-over-year gains. 

This article originally appeared in the June 2020 issue.

Related

2020: A Timeline

Changes ahead, changes behind: A long, strange year.

Boat Registrations Continued to Soar

Strong demand continued through September.

2020: What We Learned

A cross- section of industry leaders weighs in.

Boatloads of New Boaters

The influx of newbies to recreational boating.

Inventory to Remain a Challenge in 2021

Retailer sentiment remained strong in October, but dealers see a shortage of boats as a hurdle for next year

Amplifying Our Collective Voice

In this time of immense change, we all must continue to position the industry for a redefined future

Fortune Favors the Bold

Viking and Valhalla Boat Works had quite a FLIBS.