The following is a summarized version of Jack Neff’s article, originally published on AdAge.
Recession seemingly has been just around the corner for well over two years, yet the economy and consumer spending just kept chugging along. Warning signs are now intensifying, with early signs pointing to a potential economic downturn. CivicScience’s Economic Sentiment Index, that generally reports ahead of those from the Conference Board and University of Michigan, recorded its steepest two-week drop in February since its 2012 launch. CivicScience’s sharp sentiment drop was reported 10 days before Walmart executives in an earnings report cited cautious consumer spending that tempered the retailer’s full-year forecast. That sparked a 0.4% decline in the S&P 500 Index on Feb. 20, the beginning of a decline that would see the index shed 10% of its value. Within days of Walmart’s earnings report, University of Michigan and Conference Board consumer sentiment reports also showed sharp declines.
CivicScience CEO John Dick explained, “The consumer proved very resilient through last summer into the holiday season. But it was only a matter of time until household debt piled up to a certain level, and prices weren’t coming down.” He adds that the uncertainty surrounding tariffs and the impact of higher bills from the holidays were key factors driving consumer pessimism. Dick noted that “unpredictable federal policies seem to be the straw that broke the camel’s back,” adding, “Bad news can be easier for people to process than uncertainty.”
Those federal policies are particularly pronounced for federal workers hit by waves of firings and agency closures and on Hispanic consumers, he said.
Because CivicScience built its consumer sentiment index on a tracking survey business aimed mainly at gathering data for brand marketers, it can get data faster and with more detail into factors driving trends than some other surveys. The Economic Sentiment Index is based on 1,600 respondents every three days, so it can report updates on a rolling three-day average, plus provide looks into the segments fueling changes.
That’s one reason CivicScience sees that Hispanic sentiment, driven by fear of deportations and ICE raids, is a key factor in spending uncertainty, Dick said.
“A déjà vu we’re having right now is a dramatic pullback on spending by Hispanics,” he said. “Very similar to what we saw in 2017 within weeks of the election, Hispanic consumer confidence started to fall for fairly obvious reasons.”
The other déjà vu factor in current numbers is with the early pandemic period of 2020, the last time the U.S. had a sharp recession, Dick said.
“There are very uncanny similarities to right now and the early days of the pandemic in terms of how consumers are behaving,” he said. “It’s just very fear-driven.”
