US Consumer Sentiment Analysis: Reopening is the opposite of a recovery, worst yet to come

Double-edged sword – the reopening raised June's retail sales to above the levels seen a year beforehand but is likely the high watermark of consumption. Reopenings triggered a rapid spread of COVID-19, sending shoppers back home and eventually triggering new lockdowns.

The University of Michigan's preliminary Consumer Sentiment Index fell to 73.2 points in July, far below 79 expected and marginally above the initial coronavirus low of 71.8. Moreover, the forward-looking Expectations component plunged to 66.2, barely above the trough of 65.9 and far below 74 projected. 

Richard Curtin, who is the chief economists behind the survey, states that "Consumer sentiment retreated in the first half of July due to the widespread resurgence of the coronavirus" – not mincing words. 

The hasty reopening proved to be the opposite of the recovery and the economy may extend its downward spiral. People were prepared to hunker down once, reacting to the shock, understanding that it is temporary and hoping to come on top on the other side. The fiscal stimulus helped them make it through the hardest times.

Yet the resurgence of the virus may already deal with a deadly blow. Businesses that got by renegotiating rent, using government support, and burning savings. Yet after the suffering and the return to normal, some may throw the towel in face of the second wave.

Moreover, help from authorities may run out. Some of the benefits are set to expire on July 31 – the dreaded "fiscal cliff" unless politicians get their act together. It is hard to see how politicians will squabble in an election year, but stranger things have happened. 

Even with government support, these preliminary confidence figures may undergo a downward revision – especially as the virus rages. Moreover, August's statistics may be worse and hard data coming from July's retail sales and other economic indicators may also hit hard. 

The high-frequency jobless claims weekly indicator remains stubbornly high, showing that the labor market is still struggling. Overall, things are becoming pear-shaped in America. 

Will markets take notice? It is essential to remember that apart from Congress' aid packages, the Federal Reserve also pumped liquidity into markets – an expansion of around $3 trillion to its balance sheet. The central bank may keep stocks bid –  but without companies making money, they may hit their high watermark as well.