Background
Is it possible that COVID-19 increased personal spending? Not overall, but yes, in certain areas. We know from my previous post that in March people spent 8% less overall, with the biggest hits being health care, entertainment, and eating out. But the same Bureau of Economics data shows where spending increased. March data is the most recent currently available. Until we get April data (end of May), this should show the early trends – or the tip of the iceberg.
Findings
- Eating is big: Spending on groceries (excluding alcohol) jumped 20%, $181 billion. Anyone who visited a supermarket in late March is aware of the rush of stocking up on foodstuffs.
- Sin is in: Alcohol sales were up 17%, and tobacco sales were flat. In the first week after lockdowns started, ending 3/21, Nielsen reports alcohol sales were up 55%. Many of us have experienced Zoom happy hours.
- Food and alcohol increase offsets eating out: The jump in food and alcohol spend of $205 billion is almost exactly the same as the decline in food service spend – restaurants and bars – of $207 billion.
- Housing spending was flat (so far): The cost of housing, including rental payments and utilities, was flat. Of course March rent and mortgage payments would have been paid before the lockdowns and layoffs started.
- Drugs up — briefly?: Spending on prescription drugs increased in March, probably as concerned consumers stocked up on medications. Early indications are that in April and May drug spending dropped, especially doctor-administered drugs (people stopped visiting medical facilities).
Implications
The March data shows the initial spending changes. And yes, in a couple select cases, we saw COVID-19 increased personal spending. But is it the tip of the iceberg? Or will we see more changes? While we don’t have the April spend data yet, we know April unemployment numbers jumped dramatically and spending is probably dropping further.
Likely food and alcohol will hold up. Kroger, the largest US grocery chain, hired 100,000 people in the eight weeks ending mid-May, a 22% increase. As long as people avoid restaurants, they’ll be buying for home.
Most other categories are a big question mark. April data, pre-reopening, should look grim for categories like restaurants and entertainment. But reopening doesn’t mean business income returns, or that people are willing to return to public spaces. A Seton Hall study showed that 61% of sports fans wouldn’t return to live events until there is a COVID-19 vaccine.
I’ll be reviewing the April BEA data when it releases on May 29.
The small print
The data is from the monthly Bureau of Economic Analysis’ Personal Income and Outlays report. For housing, rentals are actuals but home owner payments are a calculation of the value of the home as a rental, not the actual mortgage payment.