A Closer Look: The US Economy

The Resilience of the US Consumer

By: Alex Chausovsky

What you need to know: US consumer charting course to recovery despite some choppy waters

The US consumer has long been the driving force behind economic growth in the United States. Personal consumption activity accounts for roughly two thirds of our Gross Domestic Product (GDP). Today, the consumer is the single largest determining factor in the viability of the budding economic recovery. If we continue spending money, the recovery will remain on track. However, if we pull back on our spending in a meaningful way for an extended period, the green shoots of recovery evident in the summer and early fall may wither and die.

It is therefore encouraging that the latest data in two key consumption-related metrics – Disposable Personal Income (DPI) and US Total Retail Sales – is showing resiliency despite the pandemic-driven recession. DPI is the total after-tax income received by individuals in the US that is available for spending or saving. The July reading for DPI came in at a robust $16.1 trillion (chained 2012 dollars). This is up 8.4% relative to July of 2019. To put this in broader context, DPI was hovering around the $15.0 trillion mark in early 2020, prior to the onset of the pandemic.

The higher disposable income level is both fascinating and reassuring. It indicates that consumers are much better prepared to weather this storm than they were during the Great Recession (average DPI during 2009 was 0.2% below the 2008 average) or other economic downturns. How long this resiliency in DPI will persist in the near term remains to be seen, given the absence of further government stimulus, but we are encouraged by the positive signals into the summer months.

Another encouraging sign that the recovery is taking hold is evident in the latest US Total Retail Sales data. Retail Sales encompass a variety of things on which consumers spend money, from cars to food to clothing and everything in between. Monthly US Total Retail Sales were up on a year-over-year basis in June and July, and virtually flat compared to the year-ago level in August. The recovery in the monthly data relative to the abyss seen in April, as well as general rise in other weekly economic datapoints, reflects improving economic conditions since the spring shutdowns.

There are certainly risks as we move forward, including the lack of further government stimulus (with a particular emphasis on unemployment benefits), the uncertainty surrounding the impact of colder weather and the flu season on the pandemic, and the timing and efficacy of a COVID-19 vaccine. During the first half of September, we have also seen some of the weekly economic datapoints stall in their general ascents. We will be closely watching these datasets to see if the US consumer’s resiliency holds up in the face of these headwinds, as the leading indicators suggest. We encourage you to watch the signs of the recovery with us in the months ahead. Stay tuned!