Rising unemployment adds to dipping consumer confidence

Unemployment rate is a piece of data that is deepening the lack of consumer confidence during the second wave of the pandemic. Earlier in the week Centre for Monitoring Indian Economy (CMIE) has said the unemployment rate in the country has climbed to 14.45% for the week ending May 16.

This is a 67% rise compared to the 8.67% unemployment rate for the week ending on May 9. The average rate of 8.8 for the Covid-hit FY21.

Unemployment
The think tank defines unemployment rate as the “unemployed who are willing to work are and actively looking for a job expressed as a per cent of the labour force”.

Research agency QuantEco that has a Daily Activity and Recovery Tracker (DART) Index to capture early signals and turning points, said it registered a drop of 5.3% week-on-week ending May 9. It followed a contraction of 7.9% in the week prior.

Recovery tracker
“Since the beginning of April 2021, the index on a cumulative basis, has retraced by nearly 45% to levels last seen in August 2020. The decline has been led by consumption-based lead indicators of railway passenger travel, restaurant related online searches and mobility indicators, accompanied by a rise in unemployment rate,” said its report on May 17.

While the drop in consumption last year was substantially led by supply constraints and the lockdown, this year it is more due to panic in the average consumer and a lack of confidence in the future that will shape the recovery process, said Yuvika Singhal, economist with QuantEco.

Delay in consumption
Concurs Dr Arindam Saha, director of AI-led tech firm Vista Intelligence with European venture capital. “The rising unemployment rate will trigger a fall in consumer confidence that will delay the generation of household consumption,” he said.

Consumer sentiment as measured by CMIE has been declining steadily from the week ended April 11. For that week the sentiment index was at 57.3. The next week (ended April 18) it crept down to 54.8. While the index further dipped to 52.3 in the week ending April 25, it again fell to 49.5 in the week ending May 2.

Confidence tracker
The index dropped again to 48.1 in the week ending May 9 and finally to 47.3 for the week ending May 16.

In April 2021, the consumer sentiment index was 49% lower than its levels in April 2020, the first month of the nationwide strict lockdown.

“In the week ended May 16, only 3.1% of the households reported that their incomes were higher than they were a year ago. It doesn’t get this bad easily,” said CMIE.

Continuing in May
“April 2021 had seen an increase in unemployment and a fall in consumer sentiments. May seems to be headed in the same direction. The unemployment rate shot up to 14.5% in the week ended May 16, 2021. This is the highest unemployment rate in last one year,” CMIE also said in its report.

Singhal said that last year many Indians remained indoors wondering what a lockdown actually meant. “Last year there was a lot of pent-up demand that released with vengeance as the lockdown was lifted. But this time uncertainty is clouding the outlook of most about the future,” remarked Singhal.