COVID spending rebounds: stretching to normalcy?

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.