skip navigation

Blog

Stay up to date on timely topics and market events. Subscribe to our Blog now.

ECONOMY
June 26, 2020

Consumer Spending in May Displays a Good First Step Back From Oblivion

By Michael J. Bazdarich, PhD

Stay up to date on timely topics and market events. Subscribe to our Blog now.

Consumer spending registered some nice gains in May, following two months of cataclysmic declines. Total real consumer spending rose 8.1% in May, with the April spending level revised upward by 1.3%. These gains still left May spending 11.2% below the pre-COVID level of February.

For goods consumption excluding motor vehicles, spending rose 12.3% in May, with a +3.2% revision to April, leaving it only 1.1% below pre-COVID February levels, after what had previously been announced as a 15% decline February to April. For services consumption excluding medical care, spending rose only 0.6%, with April spending actually revised lower by 0.3%, leaving this aggregate 11.8% below February levels.

When we analyzed the May retail sales data in our 6/16 post here, we were not as favorable about the May gains as we should have been. Our control sales measure includes restaurant sales, which is normally fine. However, in present circumstances, with restaurants one of five service sectors hit especially hard by COVID and related shutdowns, our control sales measure thus does not reflect the more complete rebound that goods retailers have experienced. Similarly, on 6/16, we pointed out that clothing, furniture, and personal care retailers had not seen much rebound in sales through May, but this ignored the offset in consumption of these items contributed by online retailers.

On net, allowing for these, “control” sales of merchandise rebounded in May fully back to pre-COVID levels, and you can see in this chart that this is almost also the case for goods consumption ex autos. Meanwhile, again, the rebound in services consumption is just beginning, at best.

Exhibit 1: Real Consumer Spending By Type
Explore Real Consumer Spending By Type.
Source: Bureau of Economic Analysis. As of 31 May 20. Select the image to expand the view.

There has been more of a bounced in medical care spending than was evinced by other services. Medical care consumption rose 23.7% in May, with a substantial upward revision to April. These gains still leave spending there 24.5% below February levels, but note that net decline compares very favorably with those seen in other hard-hit service sectors. Hotel spending fell 68.7% February to May, recreation 74.6%, air travel 89.4%, and other passenger travel 84.1%. Thanks to a shift to curbside service and takeout, restaurants were able to register a 24.0% gain in consumer spending in May, which left them “only” 36.2% below pre-COVID levels.

For other sectors excluded from the charts and commentary so far, vehicle spending has rebounded very nicely and utility spending is up from February, with shut-in households using more electricity and gas.

All in all, goods consumption has already rebounded resoundingly at only the outset of the economic re-opening, but services sectors are lagging, as would be expected. The biggest contributors to services spending are medical care and restaurants, and they saw the largest May gains and smallest net declines from February. Still, both of these sectors remain substantially below pre-COVID norms. The May data show a very good first step toward economic recovery, but there is a long ways yet to go.

© Western Asset Management Company, LLC 2020. This publication is the property of Western Asset and is intended for the sole use of its clients, consultants, and other intended recipients. It should not be forwarded to any other person. Contents herein should be treated as confidential and proprietary information. This material may not be reproduced or used in any form or medium without express written permission.
Past results are not indicative of future investment results. This publication is for informational purposes only and reflects the current opinions of Western Asset. Information contained herein is believed to be accurate, but cannot be guaranteed. Opinions represented are not intended as an offer or solicitation with respect to the purchase or sale of any security and are subject to change without notice. Statements in this material should not be considered investment advice. Employees and/or clients of Western Asset may have a position in the securities mentioned. This publication has been prepared without taking into account your objectives, financial situation or needs. Before acting on this information, you should consider its appropriateness having regard to your objectives, financial situation or needs. It is your responsibility to be aware of and observe the applicable laws and regulations of your country of residence.
Western Asset Management Company Distribuidora de Títulos e Valores Mobiliários Limitada is authorised and regulated by Comissão de Valores Mobiliários and Banco Central do Brasil. Western Asset Management Company Pty Ltd ABN 41 117 767 923 is the holder of the Australian Financial Services Licence 303160. Western Asset Management Company Pte. Ltd. Co. Reg. No. 200007692R is a holder of a Capital Markets Services Licence for fund management and regulated by the Monetary Authority of Singapore. Western Asset Management Company Ltd is a registered Financial Instruments Business Operator and regulated by the Financial Services Agency of Japan. Western Asset Management Company Limited is authorised and regulated by the Financial Conduct Authority (“FCA”). This communication is intended for distribution to Professional Clients only if deemed to be a financial promotion in the UK and EEA countries as defined by the FCA or MiFID II rules.