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by Matt Snider
Matt Snider

7 min read

Indicator To Watch: How COVID-19 Is Influencing Consumer Sentiment & Your Supply Chain

March 27, 2020

Matt Snider
by Matt Snider


The global response to COVID-19’s spread has pushed its market disruption into the limelight as one of the most unprecedented economic events we have ever seen. As people across the nation, and the globe, opt to stay home, retail locations have temporarily closed their doors, non-essential goods and services have shut down, and streets and public transport are uncharacteristically empty. The social distancing protocols issued at federal, state, and local levels have cut consumerism off at the knees in the midst of a healthy economy. This could effectively self-inflict a recession.

Data supports this assertion, but macroeconomic behavior of this nature is often difficult for the layperson to see manifest in their daily life. Models and concepts are abstract, and the effects of supply and demand often trickle down into minute price fluctuations for the goods we interact with over time, and sometimes only in hindsight. But the case of COVID-19 is unique because as consumers, we can feel the effects of this economic slowdown as they occur; we are experiencing it firsthand. 

How can we measure and support the phenomena we are seeing in grocery stores, in our homes, and in the media? One indicator to monitor and understand that illustrates the economics of COVID-19 is consumer sentiment. 

What is consumer sentiment?

Consumer sentiment is a statistical measure of the health of the economy relative to consumer confidence. How optimistic are consumers about the current and future state of the economy? Our confidence can be measured and inferred based on several factors, including consumer spending metrics, personal savings rate, and consumers’ personal perceptions about their financial wellbeing. 

Additionally, confidence itself is often instigated by ulterior market events, like fluctuating unemployment rates, stock market performance, and geopolitics. The public tends to be most confident when financial risk is low, in times when economic performance is booming, people have steady employment, and essential costs are low – like gas prices and home heating costs. Because people feel more secure in the state of the economy they are more likely to keep cash flow by investing in the stock market and making larger purchases. Sentiment begins to slide when markets become uncertain. 

All of these narratives intersect through consumer sentiment, creating a dynamic and complex web of economic activity. 

With COVID-19 Comes Uncertainty, Jeopardizing Consumer Sentiment

Uncertainty seems to be the name of the game as the nature of the spread of the coronavirus across the globe remains in flux. Much is yet to be understood about the virus itself, its containment, and the overall threat to humans.


Source: Federal Reserve Bank of Economic Data

Though difficult to quantify, uncertainty manifests across financial markets and economic indicators. In March of 2020, uncertainty measures surpassed those experienced at the height of the financial crisis. For consumers, this makes it difficult to financially plan for the future and can dramatically influence how they choose to spend their money – or not spend their money. 

COVID-19’s impact on Labor Markets

One of the key drivers of consumer sentiment is the labor market because high rates of consistent employment indicate people are comfortably and consistently financed to some capacity.


Source: Federal Reserve Bank of Economic Data

As large gatherings continue to be banned, and many businesses close their doors, initial unemployment claims have skyrocketed. This dramatic influx in jobless claims has conversely influenced consumer sentiment. 

Last week’s sudden surge in claims is significant because we have never seen people lose their jobs in concert the way we have with the sudden shutdowns. Bear in mind, however, that over the course of two years during the Great Recession over 37 million total claims were filed and we are comparing initial claims over two very different time periods. 

The chart below shows the inverse relationship between unemployment and consumer sentiment.


Source: Federal Reserve Bank of Economic Data

When you compare current unemployment activity with the time period of the Great Recession (2007-2009), you can see that consumer sentiment declined steeply from the period’s highs while unemployment sharply increased. More importantly, the effects lingered well past the end of the recession.

In our current environment, we are coming off both historical highs in consumer sentiment and historical lows in unemployment. Because we started at extreme ends of the spectrum for both variables, a significant uptick in unemployment will increase the potential for a more dramatic decline in consumer sentiment. Although initial unemployment claims have already spiked, a better gauge of how much unemployment may increase long-term will be the continued unemployment insurance claims that get filed.


Source: Federal Reserve Bank of Economic Data

The chart above represents a measure of the number of unemployed people that have claimed unemployment insurance benefits for multiple weeks. This measure is released every Wednesday and the monthly average has shown to be a good predictor of where unemployment will go one month ahead of time. The most recent release of the data remains low, but we anticipate seeing this value grow significantly in the upcoming weeks as social distancing leads to more and more business closures. This will begin to put upward pressure on the unemployment rate.

Expectations for Consumer Sentiment and its Ongoing Impacts on Freight

So how do we see the anticipated decline in consumer sentiment impacting consumption, and therefore freight transportation needs? When economic hardships emerge, how do consumers respond? One way to illustrate this relationship is in the variability in both durable and non-durable goods during economic pitfalls. 


Source: Federal Reserve Bank of Economic Data

Non-durable goods are used and consumed in a short period of time and have a high frequency of re-purchase. Items like food, personal care items, paper products, and other consumer packaged goods fall into this category – many of which have been highly sought after through the panic surrounding COVID-19. 

Conversely, durable goods are often more expensive goods that are used and consumed over a longer period of time. These items have a low frequency of re-purchase. This list would include appliances, automotives, and other technology like computers and phones. 

During the Great Recession, we see that the consumption rate of non-durable goods declined around 6.5 percent and declined another half percent before starting to rebound, while durable goods declined around 15 percent. In this instance, the decline in durable goods consumption began 8 months before non-durable goods and lasted 4 months longer.

While we don’t anticipate the lag in the declines in the consumption rate of durable and non-durable goods to endure to this degree, we are seeing durable good shipment volumes declining before those of non-durable goods. Meanwhile, in the short-term, non-durable goods are experiencing uncharacteristic upticks in freight demand. 

Read more about current levels of freight demand for essential goods and the anticipated bullwhip effect we see in the near future, here

Based on current data and information, we anticipate a similar level of decline for both durable and non-durable goods, with the trough for non-durable goods being shallower than that of durable goods. At this time we have no reason to believe the decline in consumption will be shorter in duration than that seen as a result of the Great Recession but much like consumer sentiment in times of uncertainty, we anticipate this perspective to evolve. 

Watching Consumer Sentiment and Expectations for Shippers

As the circumstances surrounding the spread of COVID-19 continue to evolve and become ever-more complex, understanding how a variety of economic indicators interact and how they have historically performed under similar circumstances can be helpful. Recognizing trends is the first step to creating strategies to navigate existing market challenges, but having discernment towards the unique aspects of this particular market disruption will differentiate competitors. 

Much of the market’s current influence stems from consumers and their ability to infuse money into the economy. In its current state, COVID-19 has precluded people from operating as normal market fundamentals would allow, and the effects will continue to trickle through the supply chain. 

For more information surrounding different aspects of COVID-19 on shipping and transportation strategies, visit our resource page

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