- Strong consumer spending in May doesn’t mean June will follow suit.
- 20% of small businesses are at risk of permanent closure.
- The unemployment rate is likely to remain uncharacteristically high.
America’s supposed V-shaped economic recovery depends on one thing—consumer spending.
The most recent economic data painted a healthy picture of post-lockdown consumers. The U.S. added an impressive number of new jobs in May to support reopenings. Consumer spending rose 8.2% in May. It looked like America’s growth engine was roaring back to life.
Consumer Spending Doesn’t Show the Whole Picture
Real-time data show that, while consumers appeared to come back with a vengeance in May, June could tell a different story. Yes, consumer spending jumped as shops and restaurants reopened, but we’re still a long way from pre-pandemic levels.
Google’s mobility data, which provides a state-by-state picture of how much people are getting back out there, shows that people are still mainly staying home.
Compared to normal levels, mobility trends for public transport were down 30%, and the number of people traveling to and from work was almost 40% lower. People did appear to be heading back out to restaurants, shopping centers, and other recreation and retail locations, but visits to those types of places were still down 13% compared to normal.
In states where new infections have been surging, people are hesitant to go out. In Texas, visits to retail and recreation locations were down 15%. In Arizona, mobility data were 20% below normal levels. That confirms what many have been fearing: renewed outbreaks will hurt local economies as consumers baton down the hatches at home.
Unemployment Will Keep Consumer Spending Down
Some analysts point to May payroll data as a reason to celebrate after the U.S. economy added 2.5 million jobs. However, with upwards of 20 million people still unemployed, there’s still has a long way to go before the labor market has meaningfully recovered.
Preliminary data suggest we might be waiting a long time for a full recovery. Figures from small business data tracking firm Homebase show that 78% of U.S. small businesses have reopened. Homebase exec Ray Sandza noted that 20% of companies that haven’t reopened probably never will.
If you haven’t reopened yet, the likelihood of coming back is low.
In states where virus outbreaks are on the rise, the number of businesses that have been shuttered increased meaningfully last week.
Data from Kronos, a scheduling software maker, confirm the slowdown. Over the past week, the number of shifts worked has declined in a handful of states. Shifts worked for the country as a whole increased, but at only half the pace it did in May.
Unemployment Benefits Will Drop
The pandemic stimulus checks are a big reason for the strong consumer spending data. The government has been doling out an additional $600 pandemic payment to unemployed workers, easing the burden for the millions of job seekers.
But with no additional stimulus checks coming and pandemic payments slated to end in just a few weeks, Americans will have no choice but to pull back, leading to a decline in consumer spending. Already, personal saving data show the U.S. saving rate is at its highest level ever.
Jefferies’ research suggests many of those unemployed won’t find a job anytime soon. The firm found that the number of new job postings was roughly half of normal levels last week. That figure remained constant from the previous week, yet another warning that businesses are hesitant to restaff fully.
Business Investment May Not Return for Some Time
Not only is that a bad sign for job seekers, but it’s also a bad sign for the economy. Business investment is another vital cog in America’s economic machine. Right now, it appears that cog is locked in place despite unprecedented cash infusions.
According to Morgan Stanley, U.S. firms have tapped their revolving lines of credit for $200 billion. Others looked to the bond market for more liquidity, but what’s important is they’re hoarding, not spending it.
Capital Economics Chief Economist Neil Shearing said that this kind of caution will probably continue until the pandemic is under control.
If you’re a business, do you invest now or wait and see what the state of the world is in a few months?
Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com.