A key consumer sentiment reading saw a dramatic drop in early August as the delta variant of Covid-19 increased fears about the path of the economy, the University of Michigan said Friday.

The consumer sentiment index tumbled to 70.2 in its preliminary August reading, down more than 13 percent from July’s result of 81.2. It’s also below the April 2020 mark of 71.8, which was lowest of the pandemic era.

It was the lowest reading for the measure since 2011. Economists surveyed by Dow Jones were expecting a reading of 81.3 for August.

The sudden drop in confidence is extremely rare. Economists were expecting a reading of 81.3 for August.

And a sudden drop of that magnitude is extremely rare for the index.

“Over the past half century, the Sentiment Index has only recorded larger losses in six other surveys, all connected to sudden negative changes in the economy,” Richard Curtin, chief economist for the University of Michigan’s Surveys of Consumers, said in a release. Two of those larger month-over-month movers were April 2020 amid the pandemic and October 2008, during the financial crisis.

The dramatic decline comes as the delta variant of Covid-19 has spread rapidly across the United States, leading some states and cities to reinstate mask mandates and other health restrictions. Hospitals in many states in the southern part of the country are reporting a shortage of beds to handle patients.

Health concerns could be causing a short-term decline in consumer confidence that could reverse if the situation stabilizes, Curtin said.

“Consumers have correctly reasoned that the economy’s performance will be diminished over the next several months, but the extraordinary surge in negative economic assessments also reflects an emotional response, mainly from dashed hopes that the pandemic would soon end,” Curtin said.

“In the months ahead, it is likely that consumers will again voice more reasonable expectations, and with control of the Delta variant, shift toward outright optimism,” he said.

To be sure, the consumer sentiment index is just one preliminary data point. Other recent economic data points, including the latest monthly jobs report and weekly jobless claims, have pointed toward a continued economic recovery.

[Read More…]