BlackRock Investment Institute

Macro insights

Coronavirus finally drags down the U.S. consumer

The U.S. consumer has historically played a stabilizing role during economic downturns. Yet during this unprecedented shutdown of the global economy, consumers are leading the contraction as a direct result of the stay-at-home and social distancing measures that have been put in place to slow the spread of coronavirus. This hits the service sector, the main engine of growth, in a way never seen before in the modern economy – and as a consequence of the broader public health response.

Contribution to year-over-year U.S. GDP growth, 1950-2020

Source: BlackRock Investment Institute and U.S. Bureau of Economic Analysis, with data from Haver Analytics, April 2020. Notes: The chart shows the contribution to year-over-year U.S. GDP growth from personal consumption expenditures and all other areas of spending, such as capital expenditure and exports. The estimate for 2020 is taken from four bank estimates representative of the consensus.

Consumer resilience has historically been the product of steady spending, which rarely falls into negative territory even during recessions (see the chart above). And this resilience has been a meaningful cushion for overall growth given that personal consumption expenditures (PCE) amount to nearly two-thirds of total GDP in the U.S. In the seven recessions since 1970, consumption never weighed materially on overall real GDP growth by going deeply negative. This is certain to be different this time around. The median forecast in the market sees U.S. consumer spending plunging. Other more volatile spending categories such a capex, housing and export demand together pulled GDP growth down by an average 1.9 percentage points during recession periods. The fact that the U.S. consumer is driving this downturn underscores how unusual the coronavirus response – and resulting contraction – is compared to previous recessions.

Many of the social distancing measures introduced to contain the pandemic specifically target consumer activities, such as dining out, shopping and recreation. Another channel is the extent to which these lockdown measures are hitting labor markets. The impact is beginning to materialize in weekly indicators. As of the week ending April 11, the American Staffing Association’s Staffing Index is down almost 35 percent year-over-year; gross demand for petroleum products is down 19 percent; and same-store retail sales have contracted two percent after running at a 9 percent clip in late March. This points to greater declines yet to come for the Census Bureau’s monthly retail sales gauge. Four bank estimates representative of the consensus suggest that real PCE will fall 3-3.5 percent for the year – a consumer-led contraction in the U.S.

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