Monday September 14, 2020 |Notes

Consumer spending has not recovered

Ecommerce is surging and yet consumer spending still lags. Tech companies have reported record growth and ecommerce businesses of all sizes hare benefitted from the push to digital commerce due to the pandemic. This shouldn't overshadow the bigger problems in the economy, exemplified by the lack of rebound in consumer spending.

Many consumer activities are yet to seen anywhere near a full recovery. Airline travel is still down ~70%, museums & movie theaters are mostly closed, restaurants are well under capacity, and sporting events are off limits. These are significant spending categories for consumers and they are not being replaced with commensurate spending in the digital realm. Tyler Cowen mentioned the subject in his recent Bloomberg column, where he urges individuals to spend more:

Savings have been so high in part because people are hoarding resources for an uncertain future. But a lot of the explanation, especially for those with higher incomes, is that planned expenditures became impossible, dangerous or inconvenient. Instead of flying to Paris and staying at a hotel on the Seine, they drove to a cabin in Maine or West Virginia. Or maybe they postponed that purchase of a new car or spent less time browsing in a bookstore. In any case, the end result is less spending and more savings, whether conscious or not.

Those may well have been prudent decisions. Still, many of us are not spending enough money having fun. We have been too slow to develop new, Covid-compatible interests.

Consumers are holding cash, waiting for a better time to spend it. This isn't a sign of optimism in the economy. There's signs of a K-shaped recovery, where many are left behind. This will take effects on the greater economy, as pointed out by Small Business Labs.

We think the economy will get to 90%-95% of pre-pandemic levels by the end of the year, but the last %%-10% - which are big percentages in terms of the economy - will take much longer.

Unfortunately for the small business sector, it over indexes in industries that are not recovering quickly. This is one reason we continue to forecast that a large number of small businesses will close this year.

Consumer spending is lacking and surges in ecommerce may be masking some of the greater troubles ahead. The biggest spending months of the year lay ahead, and while a greater percentage will take place online, it's likely to be a smaller pool of total spending compared to last year. Small businesses will be most likely to feel the negative impacts first.

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