Consumer spending is shifting due to COVID-19 impacts. What do those trends look like? Where are people spending their money during this coronavirus pandemic? Can experts predict what it might look like when the “new normal” happens?
What is Consumer Spending?
According to the US Bureau of Economic Analysis, “Consumer spending, or personal consumption expenditures (PCE), is the value of the goods and services purchased by, or on the behalf of, US residents.” Used as a metric for measuring the economy, changes to consumer spending can signal opportunities for businesses to modify the products or services they offer.
Looking at your spending patterns, you can guess at some of the widespread changes due to COVID-19. Let’s take a look at the data.
Consumer Spending Before COVID-19
What did consumer spending look like in the US before COVID-19?
A summary by The Balance of 2019 4th quarter data released by the Bureau of Economic Analysis showed an increase in consumer spending. Consumers were spending more on:
- recreational goods and vehicles
- food and beverages
- personal care items
- housing and utilities
Per the US Travel Association, spending on leisure travel in the US by domestic travelers was over $681 billion.
Changes to Consumer Spending Due to COVID-19
The economic shutdown has affected consumer spending.
Some changes are due to nonessential services being curtailed or shutdown. For example, massages, hair cuts, pedicures—customers won’t be spending money here until these services open up again.
But there is even a trickle-down effect to the stay-at-home orders. Consumers aren’t buying some available products that are now perceived as unnecessary. As the Associated Press reports, “People are not going to work, to bars, and when they travel outdoors, it is often with a covered face. None of that bodes well for makeup or skin products.”
According to the New York Times, there is give and take on where money is spent.
- Restaurants had decreased sales, but home cooking increased food purchases at grocery stores and via online meal kits
- Entertainment spending decreased (events and theaters closed as nonessential) but in-home entertainment like online gaming increased
Healthcare spending has actually decreased due to nonessential screenings and surgeries being postponed.
The US Census Bureau released its Advance Monthly Sales for Retail and Food Services, March 2020 in mid-April. The data shows an 8.7%, or $483.1 billion, drop in U.S. retail and food services sales in March 2020. Specifically, “Food and beverage stores were up 28.0% (±0.9%) from March 2019, while clothing and clothing accessories stores were down 50.7% (±1.8%) from last year.”
And the expectation is that an 8.7% drop may be the beginning of a downward trend. According to NPR, “Economists are warning that April might show an even bigger decline in retail spending as shutdowns continue—and in some areas didn’t begin in earnest until late March.”
Supporting that prediction of a downward trend in consumer spending are consumer sentiment surveys. Consumer sentiment is a measure of consumers’ confidence in buying something right now. According to a MarketWatch report, “The preliminary reading of the consumer sentiment survey sank to 71 in early April from 89.1, marking the biggest-ever 1-month decline and putting the index at lowest level since 2011, the University of Michigan said Thursday.” If consumer sentiment continues to drop, then it is likely that consumer spending will continue to drop overall as well.
The Horizon Consumer Science US Consumer Sentiment well-being index shows daily updates representing 7-day moving averages from their survey. On April 18, the data indicated consumer sentiment for retail spending was 14% below average. Three subcategories of retail spending were up—groceries (41%), books/video games/music (13%), and food delivery/ takeout (4%). All other categories were down with clothing, shoes, entertainment, and eating out all 30% or more below average.
Consumer Spending Predictions
While no one has a crystal ball to see what the future holds, experts are trying to guess what consumer spending may look like after the coronavirus pandemic. We have all made changes to our spending habits, but will those changes be temporary? Will consumers want different products? Will those items even be available if supply chains disappear or shift from global to regional?
Once nonessential businesses and schools reopen, people might flock back to old habits. But there is a chance the new habits are here to stay as consumers realize the “need” was really a “want.” For example, could home cooking have become a habit that decreases restaurant purchases even when in-dining options are available? Does that mean a restaurant shifts some of its services to catering or providing family-size take-out meals to compensate for lost dine-in revenue?
Behavior changes and changes to supply could be a double-whammy to some industries. Take travel as an example. Behaviorally, to maintain physical distancing, travelers may avoid airplanes or large hotels. On the supply side, international travel may be less accessible if there are border closures due to a resurgence or a country requires a medical card proving COVID-19 immunity. On the upside, if a tourist supplier recognizes that initial consumer spending may be on domestic travel, could they focus marketing on “stay local” messages?
Fashion is another sector that could be impacted by post-COVID19 behavior changes and supply chain disruptions. The McKinsey Institute predicts the consumers may make more ethical fashion choices, as well as be limited on what they can buy due to supply chain disruptions.
In addition to the “what will they buy” predictions, there are the “how will they buy” predictions. The US chamber of commerce predicts a change in how customers will expect to make purchases. The shift to online buying that occurred as part of the lockdowns will likely continue. A major barrier to using online shopping is the “trying it” phase. Once a consumer has leaped that hurdle and used online buying, they are apt to continue that behavior for future purchases.
Action Items for Small Business Owners
Even as trends and predictions continue to change, small business owners can take steps to capitalize on consumer spending shifts.
- Track trends and change your products or services if needed
- Consider online distribution channels for your product if feasible
- Watch for new markets that may be available for your product or services as consumer spending trends shift