WASHINGTON (Reuters) – U.S. consumer sentiment dropped to near a 3-1/2-year low in March as the coronavirus epidemic upended life for Americans, and consumer spending was sluggish in February, strengthening economists’ expectations of a deep recession.
The reports on Friday followed data on Thursday that showed the number of Americans filing for unemployment benefits rocketed to a record 3.28 million last week, eclipsing the previous record of 695,000 set in 1982.
The highly contagious virus, which causes a respiratory illness called COVID-19, is wreaking havoc on the economy, prompting the Federal Reserve to take extraordinary measures and the U.S. Congress to approve a record $2 trillion stimulus on Friday. Economists say the economy is already in recession.
“People are struggling to understand the magnitude and duration of the economic shock from COVID-19,” said Chris Low, chief economist at FHN Financial in New York. “Job losses are the most vivid demonstration of the new reality. As the reality sinks in, confidence is likely to fall into the mid-50s by May.”
The University of Michigan’s Consumer Sentiment Index fell to a reading of 89.1 this month, the lowest level since October 2016, from a final reading of 101.0 in February. It was the largest monthly drop in the index since October 2008, during the height of the financial crisis.
Economists polled by Reuters had forecast sentiment would drop to a final reading of 90.0 this month.
The survey’s gauge of consumer expectations tumbled to a reading of 79.7 from 92.1 in February. The University of Michigan expected consumer sentiment would decline further because of rising unemployment and the resulting drop in household incomes.
Governors in more than half of the nation’s 50 states have ordered residents to stay mostly indoors, affecting over 100 million people. Widespread job cuts and the plunging economy have seen President Donald Trump, who is running for re-election in November, pushing for businesses to reopen by mid-April.
With infections and the death toll rising, many health experts, economists and politicians have warned against such a move. The United States now has the most coronavirus cases in the world, with more than 97,000.
In a separate report on Friday, the Commerce Department said consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 0.2% last month as households spent more on electricity and gas, offsetting decreases in motor vehicles and parts as well as recreational goods. Last month’s increase matched the gain in January and was in line with economists’ expectations.
