Assessing the Health of US Consumer Markets

When analyzing macroeconomic trends in the United States, it’s important to understand the key indices and how they impact the overall health of the U.S. consumer economy and the trends. These indices include:

• Unemployment trends

• Consumer sentiment

• Inflation outlook

• Overall national GDP

 

At the beginning of the pandemic, economic uncertainty and the sudden halt of economic output led to a spike in areas like national unemployment and a drastic fall in national GDP numbers.

However, these indices normalized after the reopening of the economy; in some cases we are seeing robust growth, including the housing market boom and an increase in discretionary income for individuals due to either a decrease in certain expenditures, working from home, or funds from government interventions.

The monthly unemployment rate in the United States has been on a continuous decline since the pandemic spike in early 2020; the most recent data from the Bureau of Labor and Statistics (BLS) shows the total nonfarm payroll employment increased by 235,000 in August 2021 and the unemployment rate declined to 5.2%, representing a 0.2% decline from July 2021. The trends indicate that as the retail sector job markets continue to struggle, professional and business services, transportation, and warehouse jobs have been consistently rising month over month.

As shown in the graph above, as the unemployment numbers have been coming down, we are seeing a direct increase in job openings; however, the labor participation rate has been relatively stagnant—in August, 2021 the labor participation rate was 61.4%.

With the economic halt in 2020 and pandemic-related measures, consumer spending fell sharply, reflecting a 3.9% contraction compared to a 2.4% expansion in 2019. On a brighter note, consumer savings saw a significant increase in 2020, with the consumer savings rate being 14.2% in 2020, which was more than twice as much compared to the savings rate in 2019.

 

There are some sectors of consumer spending that will benefit more with the rising vaccination rates and consumers becoming more comfortable meeting and visiting their loved ones, including bars, restaurants, and local travel destinations. However, public transportation may take a long time to recover, and it may not fully recover to its pre-pandemic levels due to remote work becoming the new reality and more companies adopting hybrid work schedules. In 2020, people generally avoided public transportation and shifted to either purchasing new/used vehicles (explaining the surge in both new and used car sales) to get around and/or getting out of large cities and making small, yet accessible, towns their long-term residence,which reflects the jump in the housing market.

Another sector that’s poised for significant growth is travel, but it may take some time. As consumer confidence is building and vaccinations have proven to be effective, more and more people will take a chance to travel domestically and internationally. However, this sector will continue to face headwinds with new virus variants, the unvaccinated masses, and various regional and international requirements for travel. Although the graph above shows that people are becoming more comfortable with travel, travel destinations have not all been open or prepared to handle travelers due to their own struggles with controlling the virus.

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It’s safe to assume that the pandemic brought some fundamental shifts in the U.S. economy and the way we interpret certain indices and data, and these changes are here to stay for good. The largest shift is the hybrid work schedule. This prompted a mass exodus from large cities to suburbs or elsewhere, ultimately benefiting these areas with population growth. However, with the influx of people into these areas that were once affordable, it will continue to get out of reach for people who didn’t live in big cities or had those jobs; hence, the migration will likely not help with income equality.

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