Month: June 2020

Background

Personal spending has been hammered since the pandemic lockdowns started in March.  As states are starting to reopen, the May Bureau of Economic Analysis data showed that consumer spending climbed 8% from April, and is now approaching 90% of the February level.

What sectors of the economy are recovering?  Past posts have examined the categories where spending held up – food, alcohol, housing, prescription drugs, in-home entertainment.  Similarly, some categories continue to suffer dramatically – no one is getting on a plane or in a hotel room.  But there are sectors that are starting to show resilience and indicate the consumer mindset that is driving COVID spending rebounds.. 

Findings

• Doctors no longer pariahs? The biggest category that’s rebounding is health care.  Spending was down 40% by April as people were either afraid to seek non-emergency care, or weren’t allowed to.  It’s recovered over a third of the decline. Still it’s lagging. And maybe it’s an excuse, but almost no one is going to their dentist.
• Make my house nicer:  Spending on household furniture and furnishings is back at pre-pandemic levels.
• But…get me out of the house!  Spending rebounded for cars and for recreational items, with the biggest recreational category increase “driven” by RVs.
• I want to go to the mall?  Jumps in clothing purchases and eating out haven’t returned those categories to anywhere near their pre-pandemic levels, but still show that many people have been itching to get out to eat and shop.

Implications

There are three offsetting implications.  The first is around spending:  it’s hard to keep Americans from parting with their money.  The stimulus checks actually sent income jumping up in April, and in May people started their COVID spending rebounds.  It appears that we were willing to hold off on shopping for a couple months, but now are ready to go to the mall.  We are a social species and we don’t like being cooped up.  

The second issue is the resurgence of virus cases.  On the heels of our going out again, more people are sick.  Governors are closing bars and stepping back from their reopening plans.  We will likely see a spending uptick in June data, but the summer months may see a spending pullback as people fear getting sick, stimulus checks run out, and establishments face more restrictions.

Finally, what does this say about our ability to save?  Probably the best thing Americans can do from a personal perspective is to save as much as they can.  We’ve never been good at this.  In May, income fell 4% as stimulus payments tapered off.  Spending rose.  Therefore, the savings rate is coming back down.   While consumer spending is good for the economy, it’s not good for individuals who don’t have savings.  How do we encourage people to keep preparing for retirement when the message from governments is to get out and spend? Future posts will address this need.

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The small print

The data is from the monthly Bureau of Economic Analysis’ Personal Income and Outlays report.  Because it comes out about a month after the end of a period, we don’t know what happened in the past 30 days.  All the data is reported annualized – e.g. the May numbers reported are 12x the actuals observed because the BEA always annualizes for comparison purposes.  The recreational category includes computer and software purchases, which were also up in May.

Background

The April Bureau of Economic Analysis data showed that since February, consumers have cut back on spending by 20% with most sectors getting hammered.  However, there are a few areas of the economy that have stayed strong.  Some COVID spending holds up., What are they, and why?  And will they continue to be strong?  

Findings

The chart above shows the change from February, the month before the lockdowns started.  For each category, the top (blue) bar shows how much March changed vs. February.  The bottom (orange) bar shows how much April changed vs. February.  You can see from this the categories that jumped in March but fell back in April.

• Food and sin are back to “normal” levels: While grocery and liquor jumped in March as people stockpiled, in April they fell back near their February levels.  Tobacco sales have been consistent February through April.
• Screens are solid:  Spending on Internet and cable/satellite TV has held up through the lockdown.  If you’re at home, you can’t cut back on the web or the Netflix.
• Quarantine amusements a flash in the pan? Spending on toys and games jumped in March, presumably as people prepared to deal with more time at home.  However, April spending was lower.  Perhaps there are only so many jigsaw puzzles one can assemble.
• Can’t avoid houses and bank fees:  Two huge categories, housing/utilities and financial services, have held up.  It’s hard to stop paying for a place to live, or a credit card fee.  This suggests that at least through April there hasn’t been a wave of renters or homeowners stopping payment. 

Implications

The “recession proof” industries are ones you’d expect – eating, home entertainment, housing/utilities, sin (alcohol and tobacco).  So — for some categories, COVID spending holds up. But the decline from the March surges has implications for the broader economy:

• Not a grocery/eating out tradeoff:  In March, the decline in restaurant spending was offset by the growth in grocery spending.  In April, groceries fell back to normal after people stopped stockpiling.  But dining out tanked further, leaving total “eating” spending much lower and a big hole in the economy.
• Sin is always “in”:  Interpret it how you will, Alcohol and tobacco sales are sturdy.  Historically, in a recession alcohol sales fall somewhat in dollars but climb in quantity as consumers move away from luxury tipples.
• Housing spending stability may be an illusion:  In April most renters – and homeowners – were likely still making their payments at the beginning of the month before the recession set in.  The real test will be in May and beyond as incomes fall (assuming the federal stimulus ends).

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The small print

The data is from the monthly Bureau of Economic Analysis’ Personal Income and Outlays report.  Because it comes out about a month after the end of a period, we don’t know what happened in the past 30 days.  All the data is reported annualized – e.g. the April numbers reported are 12x the actuals observed because the BEA always annualizes for comparison purposes.  The housing data is a bit wonky as there are assumptions of value and payments in there, but should be a reasonable rough estimate.  The financial services category includes insurance, bank commissions and fees, and a large category of “implied” expenses, complex enough that I’m not going into them here.

Background

The Bureau of Economic Analysis data released on Friday shows that the personal savings rate tripled to 33%, an historic high.  This follows March’s jump from 8% to 13%.  If these are hard economic times, what in the world is going on?   How is it that COVID triples the savings rate?

Findings

• While employee compensation tanked, stimulus payments more than compensated: While compensation fell 8%, a huge slug of federal stimulus payments and incremental unemployment compensation actually raised personal income overall by 11% in April.
• The floor fell out of spending:  Personal spending was down 14% in April, and 20% over March and April combined.  Higher income, lower spending = COVID triples the savings rate vs. March…and quadruples it vs. February..
• No one wants to see a doctor:  The single largest spending drop is health care.  People either can’t, or won’t, see health care professionals.
• Going out has gone away:  Eating out, hotels, events, gasoline – all are down dramatically.
• Forget travel – it’s in free fall:  Airline spending is down 94%, public transportation 91%, as any conveyance you’d share was shunned by almost everyone.
• Clothes?  What clothes?  Spending is down by half.  Given reports that video call participants are dressing up only the upper half of their bodies, perhaps this makes sense.

Implications

These data show which industries are hardest hit in the depths of the lockdown, and may point to those that will have the hardest time persuading consumers to return.  When we see the May data in a month, it may show some tentative rebound in some sectors given gradual reopening of the economy. 

It’s easy to conclude that airlines are in for a rough time, but there are some more immediate consumer issues and concerns:

• Non-COVID health issues:  Scared consumers are postponing any medical attention.  This will come home to roost in declining health for many.  Hospitals and health groups are already reaching out to their patients to persuade them to come back in.
• Is it safe?  Not just dentists – but any business – will find people asking this question.  While this is obvious – it may be that critical sectors like health care will lead the way in getting consumers back in to businesses.  Medical offices and hospitals may also be able to lay claim to using the most advanced disinfection techniques. 
• Will the stimulus continue?:  The CARES act has burned through the majority of its stimulus payments by the end of April.  If it doesn’t continue paying, and states don’t pick up the slack, we’ll see a significant drop in income and another big hit to spending.

The small print

The data is from the monthly Bureau of Economic Analysis’ Personal Income and Outlays report.  Because it comes out about a month after the end of a period, we don’t know what happened in the past 30 days.  All the data is reported annualized – e.g. the April numbers reported are 12x the actuals observed because the BEA always annualizes for comparison purposes.  This means that the press usually gets it wrong and reports annualized data as one month’s amount.

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