Tuesday, December 29, 2020
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The goods-based recovery.
About 70% of U.S. GDP growth comes from consumer spending. And this spending can basically be broken into two categories — goods and services.
A good is an item — a couch, a car, a shirt.
A service is basically anything else — a meal, a surgery, an Uber.
And about two-thirds of this spending from consumers is typically focused on services.
Which has been a challenge for the economy during the pandemic.
Restaurants have been closed, events have been canceled, and travel has been discouraged in an effort to slow the spread of COVID-19 and keep the pressure off a stretched health care system. Even routine medical check-ups and elective surgeries have been paused or postponed at various points this year.
Goods, on the other hand, have proven to be pandemic friendly. With people spending more time at home, companies like Williams-Sonoma (WSM) and Wayfair (W) have enjoyed huge years with consumers on both ends of the income scale looking to upgrade their dwellings. Or just needing to set up a home-office in a pinch.
The housing market has also surged as people re-evaluate their living situations amid changing social and professional expectations. And cars have been flying off lots as people seek improved flexibility and privacy in situations that do require some amount of travel.
All of which has led to a unique recession, a unique recovery, and sets us up for a fascinating year ahead.
So as we look back on 2020, the Morning Brief thinks the following chart really sums up what this year was all about in the U.S. economy.
The purple line shows total consumer spending through November is down about 3% from January 2020. In services, this decline is much sharper with the decline coming in closer to 7%. Consumer spending on goods, however, has surged and as of November was about 7% above January levels. Said differently, as of November consumer spending on services was running at an annualized rate about $600 billion below the pace seen at the start of 2020. For goods spending, annualized spending is up just under $400 billion.
We’ve written previously about pent-up demand aiding growth in 2021, and surely when vaccinations are widespread, consumers are more confident in their health and safety, and as lawmakers roll back some restrictions we will see initial bursts of spending in sectors that are hurting today.
As economists at Goldman Sachs said in a note Monday, “Normalization in the most virus-sensitive consumer service sectors should imply a strong recovery in aggregate consumer spending because those sectors now account for the great bulk of the remaining consumption gap.” And the firm’s data shows that the 15% of consumer spending most impacted by the pandemic is still more than 20% below pre-COVID levels. There is, in other words, a lot of catching up to do for spending on food, transportation, and recreation services.
How, if, or when the lines on our chart of the year converge, reverse, or hold steady in the months and years ahead will determine which companies and sectors and workers are the winners and losers of a post-pandemic economic recovery.
And no matter what happens next, these trends and this chart will forever define the sudden consumer changes that rippled through the economy in 2020.
By Myles Udland, reporter and anchor for Yahoo Finance Live. Follow him at @MylesUdland
What to watch today
Economy
9:00 a.m. ET: S&P CoreLogic Case-Shiller 20-City Composite Home Price Index month-over-month, October (1.00% expected, 1.27% in September)
9:00 a.m. ET: S&P CoreLogic Case-Shiller 20-City Composite Home Price Index year-over-year, October (6.95% expected, 6.57% in September)
Earnings
No major releases
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