Will the Pandemic Stifle Holiday Shopping Season?
October 19, 2020
By Krista Eberly, CFP®
Securities Analyst II
While shopping at Sam’s Club last week, I noticed Christmas decorations are already on display. As I looked down to double-check the date on my phone, I realized that it is indeed that time of year. Given what 2020 has brought us thus far, it does not feel like Christmas is only a little over two months away. I started to panic because I have yet to start my Christmas shopping. Have you?
Last week’s retail sales data shed some light into the current health of the U.S. consumer, giving us an idea what we can expect this holiday shopping season.
Motor Vehicle Sales Drive Retail Sales Up
The Commerce Department reported that retail sales rose a seasonally adjusted 1.9% for the month of September, more than double economists’ expectations. A key driver behind this increase came from motor vehicles sales. According to the Wall Street Journal, this makes up about 20% of total retail sales and it rose 3.6% last month. As a result of the pandemic, consumers are shifting away from public transportation and gravitating towards utilizing and/or purchasing vehicles. You are seeing this increased demand show up in consumer prices. Looking at the components of the Consumer Price Index (CPI) report, the prices on used cars and trucks rose 10.3% in September from a year ago.
The bar chart below from the Wall Street Journal illustrates the monthly changes in retail sales so far this year. We witnessed sharp declines back in March and April and since then, we recorded five straight monthly gains. In fact, retail sales are back to pre-pandemic levels, solidifying a V-shaped recovery for this report.
A Full Recovery in Consumer Spending?
Does this mean that consumer spending has fully recovered as well? Unfortunately, no. Retail sales only make up a portion of overall consumer spending (this is the figure that goes into calculating gross domestic product or GDP). It does not include spending on areas such as health care, hospitality, etc. Nevertheless, retail sales have been a bright spot for the U.S. economy and the recovery thus far.
We can attribute the quick recovery in retail sales to fiscal stimulus, i.e. the CARES Act. As part of this aid, most Americans received one-time checks back in April and additional weekly unemployment benefits through July for those who lost their job due to COVID. These cash flows helped consumers continue to spend and to improve their balance sheets. The chart below from the Wall Street Journal shows the median checking account balance and how much it increased for both the employed and unemployed Americans during the months aid was received. Since additional benefits expired, cash balances have dwindled but remain at or above March levels.
Are We Ready for Holiday Shopping?
What we can take away from both charts is that the consumer is heading into the holiday shopping season in decent shape. However, this is subject to change depending on what happens with the coronavirus, the labor market, and any fiscal stimulus from here. This is why you are seeing fiscal stimulus news continue to dominate the day-to-day headlines and impact near-term market performance. Additional aid will not only be a boost to economic growth, but it will help those individuals still struggling to be able to spend this holiday season.
Have you checked your financial health heading into the holiday shopping season? If not, schedule an appointment today. We can help you review your overall financial picture by utilizing our financial planning software, Money Guide Pro®.