Zillow Market Pulse: June 12, 2020

June 12, 2020

Consumer confidence is up strongly, but uncertainty lingers about the pace of the economy's recovery and the state of personal finances. Consumer activity is picking up, including in some sectors that were hardest hit by the economic shutdown. But a rise in covid cases threatens this nascent recovery.

• Consumer sentiment improves for the second straight month

  • The University of Michigan's Index of Consumer Sentiment rose 6.6 points from May to June.
  • The index remains 19.7% below last year's level, as expectations for a quick return to normalcy remain low.

• Spending activity is indeed picking up

  • Overall consumer spending has recovered to 90% of pre-virus levels, according to Goldman Sachs.
  • Air travel remains well below last year's levels, but has improved recently.

• Increased consumer activity coincides with an uptick in covid case volumes

  • Many states, including some of the nation's largest, recently set new one-day records for case counts.
  • Officials in Houston are considering reimposing stay-at-home restrictions in response to rising case counts.

 So what?

The continued nationwide economic reopening helped push a key measure of consumer sentiment higher in June. The University of Michigan's Index of Consumer Sentiment rose 6.6 points (9.1%) in June from May, and the read on both current economic conditions and the forward-looking index of consumer expectations solidly improved on the month. The boost in overall optimism is due in large part to slowly-growing confidence in the labor market. More survey respondents expected the jobless rate (which remains near its highest level since World War II) to decline than at any point since the survey began in 2008. Even so, the report's underlying data suggest all is not well in the minds of consumers, and that few people expect favorable economic conditions to return any time soon. Almost half of the survey's respondents expect a renewed downturn in the economy in the coming years, while about two-thirds said they remain uncertain about their income prospects in the next 12 months, mostly due to a perceived slow recovery in the labor market. According to the report, this uncertainty is hindering people's willingness to make discretionary purchases – including houses.

Despite persistent uncertainty – as evidenced by yesterday's massive stock selloff – indications are emerging that suggest the economic recovery is gaining steam. Goldman Sachs found that consumer spending is currently at about 90% of the level it was on March 1, just prior to the full onset of the pandemic in the U.S., up from 74% at its worst point. Foot traffic to restaurants and hotels has improved significantly in recent weeks. Other, less aggregated indicators of consumer activity are also rising. TSA passenger traffic rose above 500,000 people yesterday for the first time since the outbreak began, and is up 28% week-over-week – a marked gain even as passenger air travel remains 81% below last year's levels. And subway ridership in New York City rose 25% for the week, as many city businesses started reopening and people began going back to work. The recovery has a long, long way to go, but it's clear that people are slowly reverting towards some normal levels of activity.

But ongoing reopening and recovery efforts have also renewed some concerns about a fresh wave of coronavirus cases. While new cases have declined sharply in New York, the hardest hit region in the initial onset of the crisis, other regions – including some of the nation's most populous states – are witnessing a surge in new cases. Just this week, Texas and Florida both reported their highest one-day count of new coronavirus cases yet, while California nearly matched its one-day record set just last week. And while the federal government has stated its aversion to shutting down the economy once again in response to this growth, other parts of the country seem to be taking matters into their own hands. Texas's case counts in the early days of the coronavirus outbreak were relatively modest compared to other states, prompting an aggressive reopening plan,  but recently case volumes have begun to rise. Officials in the Houston area said they are very close to reimposing shelter-in-place orders as cases continue to mount.

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