HomeTracking the Economic Recovery in the United States

Tracking the Economic Recovery in the United States

20 October 2020 By Mircea Vasiu

The world hit by the coronavirus pandemic watches the largest economy in the world to see how and when it is recovering. The sooner, the better for other economies due to the spillover effects. 

In September, total spending by all consumer groups in the United States declined by 3.8% when compared to January 2020. That comes in the context of sharp retail sales for the month of September that exceeded the pre-crisis level. It tells us that the consumer remains reluctant, with the high-income earners spending the least during this period.

Strong Retail Sales Data in September

The chart above shows the strong comeback in spending when compared to the April reaction. Due to the lockdowns and temporary shutdowns, April saw consumer spending diving by more than 30% when compared to the start of the year. However, slowly but surely, spending picked up to come almost flat on the year.

Naturally, the U.S. Congress fiscal package played a crucial role in supporting spending. To spend, one needs to earn, so the Congress approved for most Americans to receive weekly checks ranging from $200 to $600. For many, this was more than they were earning ahead of the crisis. The money was immediately spent in most cases, but one portion was also saved for later consumption. This is explained by the high savings rate during the pandemic, something seen in other parts of the world too.

Last Friday, we saw the Retail Sales in the United States beating expectations by a mile. Both the headline and core data exceeded by far what the market expected, with the headline release coming out almost three times bigger than the forecast.

Americans spent on cars, discounted clothing, and sports goods in September. Cars and automotive parts are the big winner of this crisis so far. At the start of the pandemic, the technology stocks gained the most, as people started investing in a small office to work from home. Everything, from software to hardware, went off the shelves and supported the tech sector to make a new all-time high during the pandemic.

Now it is time for bigger spending decisions. As people are reluctant to use public transportation, the automotive industry benefited from this switch in consumer behavior.

All in all, consumer spending is on the right track. However, the real question now focuses on what lies on the horizon now that there is disagreement on the second fiscal stimulus package. Or, more precisely – will spending remain elevated should the Congress stop the stimulus for good?

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