The pandemic has revealed how spending can just stop. So much market activity is optional or contingent and, unfortunately for many businesses, our lives go on smoothly without their products and services.
Total national spending on goods and services is getting close to normal levels, with September personal consumption expenditures just two percent behind February. But as we have noted, the contents of the consumer market basket look quite different from a year ago. Some sectors (home improvement, sporting goods) are booming, and others (airlines, theaters) are hurting badly. More stuff and fewer services.
And spending has recovered unevenly around the country. We can get a partial look at spending recovery through credit and debit card transactions. The Opportunity Insights project at Harvard has tapped into credit/debit card data from Affinity Solutions and tracked spending by states, counties and major cities. Figures 1 through 4 show how spending the week of October 4 compares to spending the week of March 1, just before the shutdown started.
It is important to note that this data is based on the home address of the card holder, not on the location where the money was spent, so it reflects the spending patterns of residents, not the revenue patterns of business. That is why Las Vegas, which has been hammered by a lack of visitors, does not look quite so bad—local residents are still spending on their daily needs even if visitors are staying away.
Figure 1 shows the March-October difference in total credit/debit card spending by residents of the 25 largest metro areas for which data is available, as well as national spending.
What jumps out is the degree to which spending in most of the large metro areas has recovered far slower than the nation as a whole. Total credit/debit card spending nationwide was down only 2 percent in early October over early March, but was down 11 percent in Seattle. While total credit/debit card spending is way down in Seattle, it has just about caught up statewide.
We can get some clue about this pattern by looking at a few of the more problematic categories of spending. Figure 2 shows spending in the accommodations and food service sector for residents of the same metro areas. Remember, this is spending by people who live in the metro area, not by visitors.
Here we see that the metro areas that furthest behind in recovery of spending in the hospitality industries are mostly affluent places with a strong presence of large businesses. The kinds of travel—international, 4-start hotels and resorts—that have been most affected by the pandemic are those typically affordable to the most affluent. Similarly, the expensive fine dining establishments found in affluent cities were almost entirely shut down, and many closed permanently. In contrast, the fast casual and quick service restaurants that tend to dominate in smaller and more affordable markets have survived and reopened in larger numbers.
Figure 3 shows changes in credit and debit card sales in the entertainment and recreation industries for the metro areas.
We see a similar pattern here, with the more affluent cities, and those known as cultural centers, lagging the most in recovery. Interestingly, Seattle has recovered more than nearly all of these metro areas and more than the national average. There is no obvious explanation for this, so we will have to wait until more detailed data comes out on specific sub-sectors.
Figure 4 shows credit/debit card spending on transportation services. This category will be dominated by air travel, but will also include rideshare services, intercity buses and trains. It would also include transit fares and passes paid for by credit and debit cards.
Seattle ranks dead last in recovery in spending on transportation services, and by a good measure. Again, there is no obvious reason for Seattle’s position, but what is clear from the chart is that none of the metro areas have recovered more than 23 percent of their spending on transportation services, and that the nation as a whole is still back over 30 percent. Even as travel restrictions have been lifted, Americans remain wary of getting on crowded planes, trains and buses.
Recent data show that in the third quarter of 2020, sales of recreational vehicles and equipment were up 23 percent from the prior year. There is clearly some substituting going on, with the RV builders of Elkhart, Indiana benefitting and the airplane builders of Renton and Everett suffering.
Personal income and expenditure data for September show the same pattern we see with credit card spending. Sales of both durable and non-durable goods are up well above 2019 levels and sales of many services remain stubbornly down. We continue to look for clues as to the permanence of these changes. Have Americans found new and attractive ways to spend their discretionary income or will we revert to the mean and get back to dining out and flying. Business and building owners and their investors would certainly like some answers.