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Summer is here again, vaccines in the US are readily available,
and state and local economies are opening up. Using our deep
consumer data and our consumer diversity model, we
take a moment to look at how consumer spending shifted during the
crisis and what the future could hold for this sector in the
emerging post-pandemic world.
Out of services, into goods
During the initial wave of lockdowns in 2020, consumer spending
plunged nearly across the board. Real (inflation-adjusted) consumer
spending on goods fell an unprecedented 13% between February and
April, while services spending plunged 20%. But the nature of the
pandemic and the business restrictions put in place to contain it
meant that in-person service providers remained shut down more
often, and for far longer, than businesses selling goods.
As retail establishments pioneered new methods of contactless
sales, such as curbside pickup and more, consumers easily
transitioned to online shopping. By June 2020, real consumer
spending on goods had already surpassed its pre-pandemic peak, and
as of April 2021, it was more than 16% above its level in February
2020. Services, however, have not been so lucky. As of this April,
real services spending was still nearly 5% in the hole.
These numbers represent the summed effects of dynamics in many
different industries. Here we highlight a few of the segments that
have led these trends.
Home offices get a makeover
When offices closed, workers scrambled to outfit their own
spaces with the necessary equipment. The result was a bonanza for
sellers of furniture and information technology. Real consumer
spending on computers in 2020 jumped 19%, while for software, the
increase was 26%, the largest gains since 2006 and 2007,
respectively.
Survey after survey showed that the majority of respondents
hoped to maintain this workspace flexibility going forward. The
shift to remote working now looks like it will be one of the most
lasting impacts of the pandemic. In our forecast, real spending on
computers and software mostly holds on to its gain, remaining at a
level far beyond that of 2019.
As jobs moved into the cloud, people moved out of the city.
Health concerns and the shift in population out of urban centers
during the pandemic left a big mark on the methods people use to
get around. As public transportation ridership plunged, motor
vehicle sales roared to life. Real consumer spending on new motor
vehicles was hobbled initially in 2020 by plant and dealership
closures. But it put the pedal to the metal in the third quarter of
that year and was pushed into turbo mode by an infusion of stimulus
checks. As a result, our latest forecast looks for an increase of
nearly 34% in 2021—an all-time record.
Work from home apparel
Before the pandemic, women's footwear was the top spending
category in all Apparel. With more women working from home or even leaving the labor force
post-pandemic, we may start to see a shift in the types of
apparel that are preferred by female consumers. Among the top five
categories in apparel spending - women's footwear, men's footwear,
women's tops, women's pant, and jewelry - four are aimed at a
population that has experienced a significant change in the last 18
months. It is likely that this shift could even mean a reallocation
of funds altogether - perhaps away from footwear and clothing, into
the now very favorable category of recreational goods.
The services slump
The initial declines in spending for the sectors most at risk to
social distancing restrictions were truly astronomical. Between the
first and second quarters of 2020, real spending on transportation
services fell 36%; on recreation services, spending dropped 46%;
and on accommodations, spending plunged a whopping 68%. While goods
sellers were able to prosper even in the presence of social
distancing requirements, these services were at the mercy of the
pandemic itself.
There are strong signs of recovery now that the vaccination
campaign is paying dividends. High-frequency data show that
restaurant activity has nearly fully recovered, movie-theater
revenues have jumped in recent weeks, and travel-related indicators
are on a broadly firming trend. Putting together this recent
progress and our expectation for further re-opening, we expect real
spending in each of these at-risk categories to reattain their
pre-pandemic levels in the third quarter of this year.
The question remains, though, who will be doing the most
spending in recovery? Pre-pandemic, nearly half of all spending on
food services (restaurants) was from consumers aged 55 and up.
Now that consumers have new hardware and habits, we expect some
of the substitution of services by goods meant to replace them
(embodied in the outstanding recent performance of spending on
"recreational goods and vehicles") to persist. In addition, while
the pandemic is coming under control in the US, it still rages
globally, worsened by the proliferation of new variants of the
virus. This will necessarily inhibit spending on international
travel for quite a while. As a result, we expect the recovery in
these categories to be gradual and do not expect services spending
to now show the same size of spike that goods saw last year.
Posted 28 June 2021 by Laura Hand, Associate Director, Analytics and Forecasting, IHS Markit
