Last week we learned that consumer spending, by far the largest component of U.S. gross domestic product (GDP), continued to expand in October. The pace of growth, though, has clearly slowed compared to earlier in the re-opening. This is unsurprising due to base effects but the latest wave of the pandemic could be playing a role as well. For example, updated mobility data shows that Americans have spent a declining amount of time on the roads ever since the positive case counts started to rise. In some regions of the country this has not been by choice as various local government officials have brought back activity restrictions in response to rising hospitalizations. A vaccine could of course dramatically change everything but some worry that in the meantime consumer spending could take a hit as we await FDA approval and widespread distribution. It is true that the spending-away-from-home areas of retail sales could remain depressed in the near-term but this will not stop Americans from shifting spending online as we saw earlier this year.
However, a big determinant of consumer spending going forward will be sentiment, and incoming survey data softened a bit recently. The Conference Board’s consumer confidence index, for instance, ended November at 96.1, a larger decline than analysts expected. Americans’ opinion of the present situation was little-changed while the bulk of the weakness occurred in the outlook for the future. This is perhaps a reflection of recent vaccine optimism offset by uncertainty about what the new regime in Washington could mean for the economy. A similar pattern was seen in the University of Michigan’s consumer sentiment index this month, and the report’s authors added that “interviews conducted following the election recorded a substantial negative shift in [expectations] among Republicans, but recorded no gain among Democrats.” Shifting the focus back to The Conference Board’s poll, despite the headline weakness the gap between consumers’ assessments of current and future economic conditions continued to dip further into negative territory in November, which is actually encouraging because this metric has historically peaked as the economy starts to exit a recession (enter a new expansion). Also of note, consumers’ reported level of optimism about job availability during the next six months deteriorated but expectations for wage growth actually improved somewhat. If the former bounces back in the next update to this survey series it could bode well for the 2020 holiday shopping season.
Sources: Econoday, Apple Maps, The Conference Board, UoM, FRBSL