Category: COVID financial behavior

Background

Consumer spending in the United States set another record high in July of 2021.  We already saw in June that this was happening as a follow-on to recent stimulus payments.  It appears that the massive government stimulus is driving the desired (by government) growth in consumer spending.  But where is this spending coming from?  Is it all about summer vacations finally coming back, or is it something else?  This analysis compares spending in July 2021 with a baseline of July 2019 – the last “normal” summer when spending wasn’t influenced by COVID or stimulus payments.  Note that the BEA data is reported as annualized data, so the numbers here are the annualized July data.

Findings 

• Eat up:   Groceries (including alcohol) was the biggest increase, and the fourth biggest jump was in eating out.  They’re both double-digit increases and combined we’re spending almost $300 billion a year more on what we eat.   A Harris pollearlier this year found that 40% of adults reported an undesired weight gain in the past year with an average jump of 29 pounds!
• Way more on our homes:  There are two drivers here.  One is home furnishings, up $97 billion.  The other is what we pay for our homes – mortgages and rent – which is up $174 billion or 8%.  This is driven both by rising average home purchase prices, with the median sale price up 16% in the past two years, and rental rates, which rebounded strongly in 2021 and are now at their highest level ever.  
• Splurging on new cars:  Vs. two years ago, spending is up 28% or $81 billion.
• Getting back to health?  Spending on health care – doctors, hospitals, etc. – is back above its pre-pandemic levels. Spending on pharmaceuticals is up 10% — both prescription and over-the-counter drugs.
• Clothing is a thing again:  Despite what seemed like a limited need to “dress up” when we were mostly at home, we’re now building up our wardrobes to the tune of $75 billion more a year.
• It’s not really going to vacations:  Note that categories like hotels and air travel didn’t even make the list of big increases.  In fact, they are both still below pre-pandemic levels, though they’ve recovered dramatically.  We don’t know though how much of this spending is business vs. personal use.

Implications

Giving people money to spend…results in spending.  Perhaps not a shocking conclusion.  But this spending is way more pronounced this year.  Much of the 2020 stimulus payments went straight to savings as many people, especially those who were still employed, chose to put the government checks into savings.  Now we’re seeing what appears to be a COVID rebound in spending.

But it’s not as much about summer vacations as it is about summer “stay-cations”.  Record spending is cocooning. We’re putting most of that money into both eating and housing.  A lot of money.  So not only is there a housing bubble, there’s an eating bubble.  As stimulus payments taper, can this continue?  

As discussed in the previous post, the decline in the savings rate may put Americans’ goal of a comfortable retirement at risk.  Government largess – especially to those who may have less need of it – encourages a spending mentality.  While this is the government’s goal, to juice the economy in the near term, it doesn’t encourage long-term financial success.  Financial advisors and financial services firms have an opportunity to reinforce with their clients the long-term approach of saving and investing.  What better time than when they have extra money in their pockets?

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The small print

This data comes from the monthly Bureau of Economic Analysis release.  They do seasonal adjustments and then annualize the data so what is reported here is essentially July times twelve.  I’ve used the numbers that are not adjusted for inflation.  Given the very low inflation rate and the big trends we’re seeing, this won’t impact any of the conclusions.   

Background

As we entered the pandemic, people stopped spending and sat at home.  Now that the country has largely reopened and people are getting out, what has this meant for their finances?  We have already seen indications of increased spending.  Are people really spending like it’s 2019 again?

Findings 

• Spending is back:   Personal consumption is at its highest level…ever.  The BEA reports that in June spending was over $1.3 trillion – the highest month on record.
• Income is higher than its pre-pandemic level, most impacted by stimulus payments:  March 2021 was the biggest distribution; about $400 billion in extra money flowed to individuals.  A smaller but notable impact was that workers’ wages and salaries were up 4% vs. February of 2020.  With unemployment dropping but still above pre-pandemic levels, something else is happening with worker pay (topic for a different post).
• The savings rate has regressed to about where it was pre-COVID:  As stimulus fades and spending grows, the June savings rate was 9.4%.  This is well down from the “cocooning” days of 2020.  It’s only one percentage point higher than in February of 2020.

Implications

People aren’t spending like it’s 2019 – they’re spending more!  Perhaps this is just making up for what they didn’t do in 2020 – buying cars, taking vacations.  However, it appears that the panic saving of early 2020 is a distant memory. Experience with past recessions shows that Americans quickly forget the pain of financial pressure and jump back on the spending bandwagon.  Extensive government stimulus appears to be doing what it was intended to do – drive spending to juice the economy.

The challenge is that Americans are returning to a savings rate that is unlikely to deliver the retirement that they desire.  This may be a moment for financial advice that counsels moderation in the spending, while recognizing you can’t shut down the splurge.  Of course, the numbers in this discussion are averages.  This– hides big differences between struggling households that are underemployed, and white collar households that stayed employed and got extra money dropped in their wallets.

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The small print

This data is pretty straightforward and consistent, coming from the monthly Bureau of Economic Analysis release.  Disposable income includes a range of categories that I didn’t discuss but also didn’t change much – income from assets (dividends, interest), rental income, business income.  Consumption is a big category and will be evaluated more in the next post.   

Background

We’ve already seen obvious spending changes during COVID – like more sin purchases and home office expenses.   Looking at full year 2020 data also shows that COVID spending telegraphs evolving fears.  A year into the pandemic, spending behavior has settled into a long-run trend.  What does this tell us about what we fear?  This analysis looks at how spending has changed from December 2019.  Comparisons are to the nadir of spending in April 2020, and to the most recent data from December 2020.

Findings 

• Fear of dying from something besides COVID:   Spending on health care initially tanked, down by a third, as people were unwilling or unable to get medical care.  But by December health spending was almost back to normal.  Presumably we all heard the messages that we could have all kinds of health problems if we neglect our care.  In addition, we were bombarded by messages from health care providers outlining all their safety measures.
• Fear of dying without providing for others:  Spending on life insurance was up 7% year over year, as firms saw a double digit percent increase in policies written,  reversing a two-decade decline.  
• Fear of dentists:   Spending on dental care plummeted by 2/3 in April, when your dentist probably wasn’t even open.  By year end, when you might expect above normal business as people finally went back to their dentist, spending was sill 15% below a year ago.  This analysis will avoid psychological analysis regarding if people use COVID as an excuse to avoid one of their least favorite things.
• Fear of flying – Commercial airline spending is still down by half vs. a year ago.  Despite massive efforts by the industry to encourage travelers to return, both the airline and hotel industry remain hugely depressed.
• Fear of cooking – Fast food restaurant meals are almost back to pre-pandemic spending.

Implications

While the parallel increase in both health care spending and fast food spending may seem counterproductive, it’s not unexpected.  We are trying to return to life as normal – or as normal as we feel safe living it.  That means seeing your doctor again.  It also means being tired of cooking (who really wanted to prepare dinner every night?).

Ultimately, this data suggests what previous posts have pointed to:  we are defining a new version of “safety”.  We apparently see as low-risk (for virus transmission) things like visiting doctors, and McDonalds, but we don’t believe that travel is safe.  The panic buying of life insurance may be a brief jump.  However, it may also suggest to financial advisors that this is a good time to have an insurance discussion while people are more open than ever to the idea. Ultimately, COVID spending telegraphs evolving fears.

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The small print

The spending data comes from the BEA.  The spending increases are not adjusted for inflation, though inflation was very low during the last year so this doesn’t change the conclusions.  “Fast food” is what the BEA defines as “limited service” restaurants, where you don’t sit down and get table service.

Background

Personal spending has recovered to pre-pandemic levels.  There are clear winners and losers – think grocery stores vs. airlines.   One area in which Americans’ spending is particularly resilient and in some cases above pre-pandemic levels is the “sin” categories like gambling and alcohol.  This examines where sin spending rises with COVID.

Findings

• Bad things in our mouths:   Alcohol purchases for in-home consumption jumped in March and never declined (currently up 15% in October vs. the February pre-pandemic baseline).  Fast/takeout food initially dropped but is now actually up 4% vs. February.
• Bad things in our lungs:  Tobacco spending is up 4%.  This is surprising, because as the year began the tobacco industry expected a decline in usage given both long term trends, and the federal law enacted that set a minimum age for tobacco purchase of 21 years.  Apparently stressed stay-at-home workers and parents have upped their consumption.
• Crappy year? Try for craps:   Casino gambling revenue initially tanked when they had to close their doors during lockdown.  But with reopening, Americans have flocked to the gaming tables.  Revenue is now trailing pre-pandemic levels by only 9%.
• Nursing the hangover? – Whether we are dealing with more stress or more stomach problems from the extra alcohol and junk food, we are spending 11% more on non-prescription drugs.  

Implications

Not surprisingly, the comforts we turn to during the pandemic aren’t always good for us — as sin spending rises.  Half of women and a quarter of men say they’ve gained weight since March.  For business, this confirms the stability of revenue streams in the “sin” categories.  For individuals, this confirms the same advice your doctor gives you – moderate your intake of food and alcohol, don’t smoke, try to manage stress.  Of course if we could solve how to motivate better health behavior, we could probably also solve how to motivate better financial behavior.  Stay tuned…

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The small print

The spending data comes from the BEA.  The spending increases are not adjusted for inflation, though inflation was very low during the last year so this doesn’t change the conclusions.  “Fast food” is what the BEA defines as “limited service” restaurants, where you don’t sit down and get table service.

Background

We’ve seen spending recovering over the course of the COVID pandemic; as summer wound down, August 2020 personal consumption spending was only 2% below August 2019.  But given that some spending is still depressed (hotels, airlines, public events), where has spending increased to compensate?  We already know Americans are getting outside more than the rest of the world – see a previous post.  But what is driving at-home COVID cocoon spending jumps?

Findings

• Living costs – gotta eat and clean:   Grocery purchases are up 10% (over $8B/month), along with household supplies (10%).
• Working costs:  Electricity costs are up 8% as people use more at home.  Computer and software spending is up 19% which one would think is work related, unless it’s a rush to play Call of Duty or Fortnite.
• Playing costs:   The recreational category, driven by games, hobbies, and pets, is up 13%.  There has also been a big jump in spending on household furnishings as we turn our eyes to improving our homes.
• Reading?!? – The newspaper and periodicals category is up 24%/$1.1 billion a month!  The BEA indicates that the big jump was in digital subscriptions in April and May.  Conde Nast reports a doubling in new subscriptions.  

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Implications

It’s obvious that when we spend more time at home, we spend more money at home.  That part of these findings is unlikely to shock anyone.  Of more interest is the impact of the trends of COVID cocoon spending jumps:

• Will employers compensate for home office expenses?  Electricity and office furnishings are added expenses to working at home.  Of course, they’re offset by lower costs for commuting and clothing (both of which have dropped in the past 6 months) so perhaps we call it a wash.
• Will the home nesting projects continue?  At some point, presumably we will have redone the guest room, replanted the garden, and painted the kitchen.  Subsequently, spending on home improvements should fall.
• Will reading make a comeback?  Whether we are seeking more pleasure in reading, more information during the campaign cycle, or just something to peruse in the bathroom, this is an interesting trend that might suggest a return to quieter pleasures.

The small print

The spending data comes from the BEA.  The spending increases are not adjusted for inflation, though inflation was very low during the last year so this doesn’t change the conclusions.  The changes in spending vs. August 2019 are almost the same as if we compared to February 2020, the last pre-pandemic impact month.  Household supplies is primarily cleaning products and paper products.

Background

We’re in the midst of the COVID pandemic and a much-publicized economic downturn.  At the same time, personal income is up since February.  We’ve already seen that personal spending is down.   But how can it be that incomes rise with COVID and recession sweeping the country?

Findings

• Disposable personal income was up 6% in July vs. February.  This includes wages, proprietors’ (business) income, rental income, investment income, and government transfer payments.  It subtracts taxes.
• Earned income dropped – but increased government transfer payments far more than compensated for the decline:  Absent the increased government payments, income would be down 4% in July.
• The government stimulus was both unemployment benefits and the broadly distributed stimulus money :  In April around 85-90% of all US households got the federal $1200/adult stimulus checks.  Ongoing, incremental unemployment benefits have been distributed as states’ compensation programs gear up.
• Spending is down – so savings is up:  With spending down 5% July vs. February, and income up 6%, the savings rate is still much higher than the historical trend.  The current 18% rate is the highest it’s been since WW II.

Implications

The summary statistic is that incomes rise with COVID.  Of course, every household has a different situation with what they make, if they’re hurting, and how much stimulus or unemployment compensation payments they are receiving.  It’s important to remember, though, that the initial stimulus was a blanket infusion of money to households with the expectation they’d spend it either on necessities, or to buy things that would juice the economy.  The reality is…not.  It appears that most of the money is just sitting in savings.  This shouldn’t be surprising, given that a 10% unemployment rate also means a 90% employment rate.  Most households seem to be hanging on to the extra money as a buffer.

From the US economy and federal policy perspective, this isn’t a good thing. From the personal financial management perspective, this is a good thing.  For once households aren’t spending a windfall money infusion, probably out of fear.  This compares to many people treating income tax refunds as fun money to immediately buy something for themselves.  If you are counseling clients on their finances, a great average outcome for their long-term success would be to keep spending down, stash the surplus income, and if possible keep working.

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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.  The data shows that the only significant changes in government transfer payments are in the unemployment insurance line and the “other” (e.g. COVID stimulus) line, so I’ve simplified my estimate of the government impact by using February transfer payments as a baseline and then assuming any change is due to these two categories.

Background

Americans have a love affair with travel, and with their cars.  As COVID lockdowns started in March, we changed to sitting at home.  But as anyone who has been on the road recently knows, traffic is picking up.  If many of us are still working from home, where is this traffic coming from?  Are we seeing that COVID drives Americans outdoors? This post examines how we have moved outdoors, COVID be damned.  Or, at least, finding ways to get outdoors separated from other people.

Findings

• Spending on outdoor stuff jumped:   Cars, recreational vehicles, and sporting goods spending are all above pre-pandemic levels.
• Traffic is up:  You already knew this!  One example (below) – Golden Gate bridge traffic has rebounded even though downtown San Francisco is still a ghost town.
• Parks are popular:   Visits to national parks are rebounding strongly toward pre-pandemic levels.  See the Yellowstone chart example below.  
• Motorhomes are renting like hotcakes:  RVShare, the largest P2P motorhome rental/sharing service, reports 50% more volume of rentals this Labor Day vs. year ago.  Most motorhome rental agencies are reporting dramatic jumps in rentals.
• So are vacation home rentals:  AirBnB reported in June that it was actually seeing higher rental volume than a year ago as people are desperate to get away from their city living.

Implications

If Americans won’t stay home, what does it mean?  Certainly increased spread of COVID is a risk.  Those providing products and services to travelers need to make them and market them as hygienic.  We’re seeing AirBnB and motorhome rentals advertising empty time between renters, and complete sanitization wipe downs.   For those Americans who worry about the virus but “need” to get out, they will seek cleanliness.

From the financial services perspective, this is an early indication that the rise in the personal savings rate may be a chimera.  Recessions usually depress car sales…but not this time?  Clients may need counsel to not go crazy spending to get out of their COVID grumpiness.

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The small print

The spending data comes from the BEA.  The jumps in spending are not only above pre-pandemic levels, they’re also above last year’s June spend levels.  This means that it’s not just a seasonal effect.

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.