Market Perspective

Market Perspective: The Reopening of the Economy

May 27, 2020
Ashish Jain

Early data indicates that consumer spending and sentiment are slowly improving as more states ease lockdown orders. 

All 50 U.S. states are beginning to reopen in some capacity, nearly two months after COVID-19 thrust the country into lockdown. 

Taking a look at several recent analyst reports, we can see that these sudden and sweeping upheavals to the U.S. economy have profoundly altered how people spend their money. 

As states continue to ease restrictions and businesses reopen, Americans are slowly starting to eat out, buy big-ticket items like houses and commute again. 

U.S. consumer spending makes up about 70% of economic output as measured by Gross Domestic Product. Ultimately, consumer sentiment will be the most important factor in tracking the success of America’s reopening and gauging the health of the economy. 

As we examine below, consumer spending and consumer sentiment go hand-in-hand. 

Consumer spending

According to a May 20 report by Bank of America (BAC), consumer spending this month has notably increased in restaurants, beauty salons and department stores. In addition, furniture and home improvement spending is rising on a year-over-year basis across the country, while spending on entertainment services is still contracting deeply.

According to BAC aggregated card data, total card spending was down -12% year-over-year over the five-day period of May 12-16, a meaningful improvement from the -40% year-over-year decline in late March. 

This shift in behavior can be attributed to the April stimulus payments, an increase in successfully filed unemployment benefits and a phased reopening of the economy. The supplemental income has helped to soften the blow for many Americans and made some more confident about the future. 

Although the reopening is relatively recent, a look at Georgia and Texas — two states in the later stages of their reopening process — could provide a roadmap for the rest of the country. 

Spending at beauty salons in Georgia averaged -46% year-over-year between May 1-7, up from -96% in the beginning of April. Both Georgia and Texas saw a pickup in spending at restaurants and department stores, with the biggest overall improvement in discretionary spending in Dallas, Atlanta and Houston.  

On May 16, the most recent date from BAC’s report, aggregated daily consumer spending year-over-year was up in these categories: 

Consumer sentiment 

More than two-thirds of states have now allowed nonessential retail to reopen their doors, according to a May 20 report by Goldman Sachs. 

However, the magnitude of traffic and sales is dependent on consumer willingness to return to stores once they reopen. 

Goldman Sachs analyzed Google Trends search data to understand which retailers were getting the most attention among consumers anticipating re-openings. 

The New York-based investment banking company found consumer interest in reopenings are higher in states less affected by the virus and that the most interest among consumers is concentrated in off-price retail, or discount retailers like TJ Maxx, HomeGoods and Marshalls. 

The economic downturn and a surplus of apparel and accessories could lead to a faster recovery for off-price retailers than for other retail sectors.

Due to pent-up consumer demand, Twitter engagement regarding store reopenings has risen significantly since early April, according to Goldman Sachs. 

The bottom line 

Optimism over the reopening of the economy continues to build. Furthermore, recent data on 13 states that have reopened for more than three weeks have seen daily coronavirus cases fall 29%, according to the COVID Tracking Project. If we can continue to safely navigate the reopenings over the next couple months, there’s no doubt the consumer sentiment will be boosted.  

In other words, “if you reopen it, they will come!” 

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