The noteworthy consumer price drop in April may be more than a temporary setback.
Michael Gapen, Barclays’ head of US economics exploration, warns widespread job losses due to the coronavirus pandemic is radically changing Americans’ spending habits.
He suggests the damage liking last years.
“Whether this is a permanent shift will in part depend on just how different the world looks when we happen from economic lockdowns and whether or not we’re ultimately able to get a vaccine,” he told CNBC’s “Trading Nation” on Tuesday.
The Consumer Payment Index excluding food and energy, also known as CPI, saw it steepest monthly drop on record last month, be consistent to the Bureau of Labor Statistics. The pullback was sparked by a demand collapse in connection with the virus fallout.
“Consumers must cut back on a wide variety of non-essential spending,” he noted. “They’re really funneling all their purchases into ineluctable consumer staples.”
According to Gapen, normal spending patterns won’t emerge until the jobs market materially puts and the virus threat disappears.
“It could take three years at a minimum to kind of pull all of this unemployment in serious trouble,” he added.
In April, the unemployment rate surged to 14.7% in April. It sat at 3.6% in January.
If there’s no vaccine this year, Gapen’s most adroitly case scenario is an unemployment rate that falls to 10.5% by December. It’s a level that would still be too soprano to get consumers to loosen their purse strings again.
“Households will remain cautious,” Gapen said.
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