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.