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Bring me the goods, hold the services
admin | August 7, 2020
This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors.
The consumer has been at the heart of the lockdown-induced swoon in economic activity in March and April as well as the partial recovery seen as the economy reopened in May and June. With June data in hand, consumer spending on goods has come back while spending on services definitely has not.
Goods are back
Consumer purchases of goods had largely recovered by June. Goods consumption was higher in June than in February, and this was not just a matter of a handful of line items (Exhibit 1). Virtually everything had more than recovered the spring losses. It might be surprising to see how much these categories have risen since before the virus. This likely is a testament to the impact of federal largesse, which has left many households more flush than they would have been in the absence of the virus.
The notable exception was gasoline consumption, not a surprise given both lower prices at the pump and less driving. This category will likely continue to rebound in the summer. Apparel was also down modestly in June from February, perhaps a reflection of the work from home phenomenon.
Exhibit 1: Consumer Purchases of Goods
Source: BEA
Services are definitely not back
Most of the areas of consumption most affected by social distancing and lockdowns are on the services side. Not surprisingly, services spending has not come close to fully recovering (Exhibit 2). The high-profile categories like restaurants and hotels and air travel were running at a fraction of pre-pandemic levels in June. Other services components were also still in the doldrums. Personal care services is another obvious issue, as it includes hair and nail salons, massage parlors, etc. Even categories that might not seem like they would be severely affected, like health care and professional services, have been slow to recover.
Exhibit 2: Consumer Purchases of Services
Source: BEA
A chill to activity from the virus
The consumer is far from all the way back to pre-pandemic spending, mainly due to sluggish purchases of various services that are both harder to provide and less desirable to buy due to the virus. The ability of the nation to tamp down the virus by enough to make these sectors more viable will ultimately determine how soon consumer demand can return to normal. While unemployment is high, federal government support in the form of rebate checks and bonus unemployment benefits have left households flush, so that, for now, the issue is not the wherewithal to spend but the willingness to engage in certain activities.
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