If consumers have money, they’re going to spend it. It’s just going to be in less traditional ways.
According to a recent analysis published by J.P. Morgan, consumer spending is down 3 % versus 2019. Considering the jump in unemployment and resulting decline in disposable personal income (DPI), I was surprised that number wasn’t higher.
Further into the report, J.P. Morgan analysts broke consumer spending into multiple buckets, including a “social distancing spending,” bucket. This bucket was defined as spending as a result of the consumer needing to go to a physical location to make a purchase opposed to doing so at home. This spending bucket, which included transportation, in-person meals, lodging, and more, accounted for 1/3 of all consumer spend thus far in 2020, a marked drop from 2019.
In contrast, and in line with reasoning that spend that decreased potential Coronavirus exposure would boom, e-commerce spending has shown sharp upwards growth. Food services, like spend on Seamless or deliveries from Whole Foods, had the largest YOY change. For example, there was increased spend on online groceries, which jumped from 4% in 2019 to 12% in 2020. And the takeout/contactless delivery space increased from 7% to 25%. Across sectors, e-commerce grew 10 %, with certain sectors experiencing more rapid growth than others.
Now, keep in mind my analysis is coming from a vantage point from assuming that the worst is over and Coronavirus doesn’t repeat cyclically as part of the fabled “second wave”. The US Bureau of Economic Analysis (BEA) reported that, even as businesses and schools started to reopen, personal income still decreased 2.7% in August, with DPI decreasing 3.2%. Part of the sharp August decrease in personal income was because of the unemployment insurance benefits that expired on July 31st, hurting the pockets of wanting Americans even more.
And though we’re out of the April and May lows, data suggests that nobody is out of the woods with households having markedly lower personal incomes than this time 2019, coronaviruses cases resurging, and increasing concerns over the results of the 2020 election.
Personally, I suspect that retail services will begin to recover but not uniformly. Even as friends who were initially out of work when the Covid-19 pandemic hit in mid-March have found new jobs and businesses have re-opened, scars are still lingering. It’s clear that the
“return to normal” won’t be an easy one, with friends reporting less shifts, less work, and less pay. They’re also, generally, more cautious.
The latter extends to me. I’m now far more likely to shop at a grocery store and go for a socially distanced picnic in Central park than I am to risk sit-down dinning. And it appears a majority of consumers feel this way, as a report by Deloitte found that food services had decreased 19.7% since February 2020, while grocery stores and their ink increased sales 11.5% from the same month.
Moreover, as the cold sets in, food services will have to adapt or die. The alternative is risking consumers not returning or forced closure due to coronavirus spread, something that has recently hurt movie theaters, as reports by Regal and AMC suggest. This means that people may once again find themselves out of jobs and/or losing profits come cold weather as many Americans are hesitant to engage in activities that put them in close contact with strangers.
Still, there’s hope for consumer spending to increase. Studies are currently suggesting that if the American consumer has the money to spend, they’re still likely to spend it but not in the ways they historically would. Consumer interest has shifted towards splurging on “self-service” care items, ranging from DIY beauty products to a boom in dinner preparation boxes, like Fresh Direct or Sun Basket.
Similarly, the same consumers are likely to spend more outlets that offer forms of escapism-such as music, books video games, and films-than they are on clothing and accessories, in contrast to previous years. When we’ve been forced to be inside and, often alone, this bent towards escaping reality makes perfect sense. And the former bolsters solo-activities while the latter carries the expectation of social interaction, something the last year has primed us to be afraid of and to not expect safely anytime soon.