More Time Spent at Home Could Further Hinder Hard-Hit Industries
Consumers Spending More but Still Cautious
Consumers kicked off the holiday shopping season last week with a surge in online spending at the expense of brick-and-mortar stores, continuing a trend that began at the start of the pandemic. Consumers set a record with $9.0 billion in online purchases on Black Friday, marking a 21.6% YOY jump, according to Adobe Analytics. In contrast, in-person store traffic declined 52.1% YOY in part due to retailers offering fewer doorbusters to avoid crowds and promote social distancing.
Beyond Black Friday, overall consumer spending continues to regain ground lost during the early months of the pandemic. Personal expenditures grew 0.5% during October, which represents the sixth consecutive month of increase, although the pace of retail spending growth is leveling off. Total spending now hovers 1.6% below February figures on a seasonally adjusted basis.
Despite the uptick in spending, consumers continue to demonstrate caution, including those with more disposable income. The personal saving rate stood at 13.6% last month, nearly double early 2020 numbers, and credit card debt continues to steadily decline. Meanwhile, spending in high-income zip codes is down 6.0% since January, but spending in low-income areas has increased 2.1%. Spending on essential items is likely to account for a higher share of household purchases in these communities.
Looking ahead, a growing number of consumers perceive stronger headwinds in the coming weeks. The Consumer Confidence Index fell 5.3 points this month because of lower expectations about future conditions. If consumer confidence continues to decline, we might expect to see households begin to rein in spending.
Percentage Change in Consumer Spending Relative to January by Zip Code Income Level
U.S. Growth Outpacing Advanced Economies
The U.S. economy is outperforming relative to other advanced economies this year despite expectations for slower growth during 4Q20. TheIMF expects U.S. real economic activity will fall 4.3% this year compared to a 5.8% average decline for advanced economies. The U.S. projection is higher than for the economies of Canada, France, Germany, Italy, Japan, and the United Kingdom.
The stimulus measures that Congress enacted this spring, in addition to meaningful actions by the Federal Reserve, have propped up the headline GDP figure. After $2.6 billion in fiscal support this year, the U.S. government is running a deficit equal to 18.7% of GDP, 4.5 percentage points higher than the average for advanced global economies.
After the Bureau of Economic Analysis left 3Q20 GDP growth unchanged at 7.4% (33.1% annualized) in its second revision, forecasters anticipate a much more subdued increase in economic activity during 4Q20. The monthly Wall Street Journal survey of 65 economists found the mean expectation for 4Q20 GDP growth will reach 4.0% annualized, while Bloomberg Economics estimates growth at 2.5% annualized. The figures would result in year-end declines of 2.5% and 2.9% respectively for the year.
Government Deficit vs. Projected Real GDP Growth
More Time Spent at Home Could Further Hinder Hard-Hit Industries
The amount of time spent outside the home has experienced some backsliding since early October when the recent surge of COVID-19 cases started to emerge. Time spent outside the home stands 10.8% below January levels as of mid-November, which is 3.4 percentage points lower than on October 1st, according to Google mobility data. During the same timeframe, the amount of time spent at stores and restaurants declined 4.2 percentage points to 19.3% below pre-pandemic levels.
The declines are relatively modest in scale, but they represent the most sustained drops in activity since this spring and suggest softening conditions for hard-hit sectors. Simple statistical analyses of daily mobility and spending data during the pandemic indicate high correlations between time spent away from home and spending at stores, restaurants, and entertainment and recreation venues.
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