Last week we explained how to understand the economy in five easy steps. This week we focus on the most important indicator to watch – consumer spending.
The great reopening has many of us dusting off our credit cards to shop (I’ll be honest, I never stopped). Yet the retail landscape is being transformed. Trends in place before COVID-19 accelerated during the pandemic and are remixing retail into the future.
What we buy
Over the past three years, consumer spending as measured by retail sales has hovered between 2% and 5% growth year-over-year, depending on the overall strength of the economy.
During the pandemic, it went on a topsy-turvy ride, with sales suppressed by COVID-19 concerns in some months and boosted by federal spending and stimulus checks in others.
Sales were flat in April after rising nearly 11% in March from the previous month.
Longer-term outlook: The pandemic also has altered the composition of sales. While the service sector typically makes up the lion’s share of spending, consumers have been spending more on goods and less on services that require physical contact, such as plane tickets and Broadway shows.
Stimulus checks were a key driver of that spending, but their effect is fading. A recent Census household pulse survey found that fewer people received a stimulus check in April than in March. And only one in five households that got a check in April spent it. The rest put the money in savings or paid off debt.
Retail sales are likely to return to their more stable, pre-pandemic rates of growth. And consumers probably will rebalance their spending towards services as the economy continues to re-open and vaccines are rolled out to a greater share of the population.
Where we eat
The hard-hit food and beverage sector continues to improve as vaccines roll out, mask mandates are lifted, and cities loosen restrictions. But it won’t be completely smooth sailing at America’s bars and restaurants.
April food and beverage sales were up 3% month-over-month, only sliver of the near 14% gain posted in March.
After an initial big bang, worker shortages, higher food costs, and uncertain customers have put a damper on that initial jump in demand. It will take a while for our favorite happy-hour spots to return to full capacity.
Longer-term outlook: Restaurants were big innovators during the pandemic, proof that necessity clearly is the mother of invention. After customers abandoned dining rooms en masse, Main Street restaurants opened take-out windows, set up outdoor seating, expanded online ordering, and adopted app-based delivery and contactless payment. These new features will remain part of the Main Street restaurant scene well into the future.
How we shop
Store closures are nothing new. Shops and malls around the country have been closing for years. There are too many stores for too few customers, technology makes it easier to comparison shop online, and more people are shopping at virtual storefronts. After averaging roughly 10% of sales before the pandemic, e-commerce now makes up 14% of sales. COVID-19 effectively compressed years of online sales growth into a period of months.
And as the number of stores shrink, so do the number of retail workers.
The retail sector lost 15,000 jobs in April. Amid a recovery, that number certainly is disappointing, but it’s important to note that even before the pandemic, retail was undergoing a shift in how it interacted with customers.
Longer-term outlook: It’s unlikely my husband will ever walk into a big-box store again now that he can make a purchase online and collect it curbside. And as big-box chains and small ma-and-pa shops embrace online sales and service, they’ll also find a more technologically receptive and savvy customer base.
Main Streeters have digitized much of their shopping during the pandemic. Even after the health concerns fades, technology as a personal shopper will continue.
Retail is an important part of Main Street – for shoppers, businesses owners, and employees. It’s also experiencing rapid change that was accelerated by the pandemic and will continue after it’s behind us.
The retail industry’s experience also points to the unevenness of the economic recovery. Though growth is accelerating at a robust clip overall, some sectors, like retail, won’t be going back to their old ways of doing business.