The second quarter should mark the trough in consumer spending. For example, retail and food services sales totaled $403.9 billion last month, according to a report released this morning by the U.S. Census Bureau. That was a 16.4 percent plunge from March and the largest monthly drop ever. Such weakness is unsurprising since the lockdowns were in full effect in April, meaning that even those consumers who still wanted to spend would have had few options outside of grocery stores and online merchants. With roughly all “non-essential” brick-and-mortar retailers shutdown, though, it will be difficult for subsequent reports to deteriorate meaningfully, and if anything the sales figures are more likely to improve in the months ahead. To clarify, “improve” does not necessarily mean a snap back to pre-coronavirus levels but simply that the incoming data should at the very least start transitioning from “worst ever” to “less bad.” The phased lifting of the shelter-in-place orders across the country will be a big driver of the recovery, and already there is evidence that this has been supportive of consumption behavior.
For example, high frequency credit and debit card data from Bank of America released this week showed that total spending in May is running at an annual pace of -10 percent, still very weak compared to before the pandemic but significantly better than the -36 percent decline recorded at the end of March. Further, MasterCard this week announced that they are already “starting to see the transition from the Stabilization phase to the Normalization phase in some markets,” with the Normalization phase occurring when “restrictions are relaxed and spending begins to gradually recover from the new lower levels, with some sectors recovering faster than others.” A key reason why the gradual lifting of the lockdowns has so far been a success is that the incoming statistics on our nation’s battle against the coronavirus have continued to improve. The number of COVID-19 tests conducted each day, for instance, has maintained its upward trend, and the percentage of these tests coming in positive is declining (even in states like Georgia and Texas that were among the first to re-open). It is of course too early to declare victory, and we will want to see these numbers continue to trend in the right direction, but the recent statistics have clearly provided more reasons for optimism than there were just two months ago. Many Americans appear to have noticed these encouraging developments because the percentage of U.S. adults in a new Gallup poll who think “the coronavirus situation is getting worse” has fallen considerably compared to early April. Similarly, the preliminary May update to the University of Michigan’s consumer sentiment index was released this morning and showed that confidence improved slightly, much better than analysts' expectations for further declines.
Sources: Econoday, U.S. DoC, U.S. CDC, Gallup, UoM, FRBSL