| This week we focus on the U.S. consumer. Consumer spending represents over two-thirds of gross domestic product (GDP) in the U.S. and is therefore a critically important force in the economy and markets, both for U.S. and global companies. The good news is that consumer spending, supported by federal stimulus measures and a recovering job market, has defied expectations throughout this recession and has recovered substantially from its lows in April.[1] While consumer spending has held up, there have been some recent headwinds from the continuing drag from the pandemic and the prospect of a “no-deal” stimulus package in the near term. Total U.S. Consumer Spending (as of 6/30/2020) There is also no doubt consumer spending has shifted during the pandemic, with significantly more shopping occurring online. The increase in ecommerce has been breathtaking to say the least with the growth in ecommerce over the last several months outpacing the growth over the prior 18 quarters combined.[2] And while this has clearly manifested itself in the performance among a core set of retailers, it has also been supportive to small business:[3] And the future bodes well given the current position of U.S. consumers, with savings up 54.6% from one year ago:[4] Measures of new orders and PMIs (Purchasing Manager Indexes) we referenced in last week’s letter also reinforces this point. According to a recent statement from the research firm, Markit, “Total new business rose for the first time since February and at a solid rate. Manufacturing firms registered a steeper expansion in new order inflows than in July, while Services signaled a renewed increase in sales.” Despite continued cautious notes from the Fed (see below), James Bullard, the St. Louis Fed President, had this to say about the outlook for the rest of the year (excerpted from a Reuters interview this week):[5] Though the situation seems chaotic, with federal, state and local officials laying out competing ideas about what activities are safe and under what conditions, Bullard said that shows adaptation in process, and will allow the country to fine-tune behavior and economic activity to what a “persistent” health threat allows. “I think Wall Street has called this about right so far,” he said, noting how firms like Wal-Mart, with its mandatory masking and other rules, have found ways to operate that others will copy. “There is a lot of ability to mitigate and proceed and most of the data has surprised to the upside…So I think we are going to do somewhat better…I expect more businesses to be able to operate and more of the economy to be able to run…successfully in the second half of 2020.” Bullard said he sees the U.S. economy shrinking 4% for the year, substantially more optimistic then the -6.5% median projection his colleagues made in June, and also less dire than the median forecast of economists polled by Reuters in mid-July. That saw a 5.6% hit to GDP for the year, with a catastrophic annualized decline of 32.9% in the April to June period offset by what will likely be similarly outsized growth numbers in the third and fourth quarters. [1] Chetty, Friedman, Hendren, Stepner [2] Baird-Strategas [3] Bloomberg [4] Bloomberg, quoted from Craig Johnson, president of Customer Growth Partners [5] Reuters. |
