The Delta variant could make the American shopper go back into lockdown, BofA says

People shopping
Bolstered by three rounds of stimulus checks, US consumers have been spending more.

  • The Delta variant could hurt the American shopper, and the economy, BofA Research says.
  • As the variant surges, economists predict a pullback in spending given concerns of catching it.
  • They cited Michigan, where spending declined after February’s Covid wave, despite no change in restrictions.
  • See more stories on Insider’s business page.

Something may be changing in the American economy for the worse, and it’s because of the Delta Covid variant. At least that’s what Bank of America research thinks.

The stock market had a major wobble on Monday, July 19, as data on the variant – and how many Americans it’s rapidly infecting – challenged economic thinking around the reopening boom, led by consumer spending. In a signal of how seriously the mood changed, previously vaccine-skeptical Republican politicians and Fox News hosts reversed themselves, urging more Americans to get vaccinated.

The American shopper emerged from lockdown to lead the recovery, but that’s now at stake.

BofA economists Stephen Juneau and Anna Zhou wrote in a Friday note that the variant is likely to lead to a shift in consumer behavior going forward, citing a 351% surge in the moving average of daily cases since July 21. Accompanied by slowing vaccination rates, they said they “believe the current surge in cases could lead to a sharp pullback in services spending.”

Daily new COVID-19 cases compared to consumer spending.
BofA compares daily new COVID-19 cases to consumer spending.

Juneau and Zhou wrote that the most vulnerable part of the economy from another COVID-19 wave would be the leisure and hospitality sector, which notably added 343,000 payrolls in June – 40% of the total 850,000 jobs gain.

Another factor they are concerned about with the Delta variant is the lack of government aid. When the pandemic first hit, Americans received stimulus checks and other benefits from President Donald Trump’s CARES Act, then another Trump stimulus in late 2020, and finally President Joe Biden’s American Rescue Plan, but another isn’t being discussed. The $4 trillion infrastructure proposal Biden wants to further stimulate the economy is at risk of being watered down in bipartisan negotiations.

Since governments seem unlikely to implement fresh restrictions as cases rise, the economists predict that most states will likely respond to the surge in infections by pushing people to get vaccinated, meaning that “shi sts in consumer behavior will determine how Delta affects economic activity and experiences during prior waves may not offer the best guide.”

They used the example of Michigan to back up their prediction. The state made no changes to restrictions during the Covid wave in late February, but consumer spending still decreased afterward, with services industries taking a major hit as less people dined out, and employment declined.

From a global perspective, BofA’s Ethan Harris wrote that several countries are experimenting with permitting or not permitting high-risk activities, and overall, he sees Delta as a “moderate headwind to global growth.”

To date, as Juneau and Zhou wrote, there has been little evidence of the variant significantly affecting the economy or spending on services, but with increased hesitancy of being in physical locations, the impact could become more prominent.

And given that Biden officials are considering adopting stricter mask guidance as the variant continues to spike, the consumer-led American boom coming out of lockdown could go back into some form of it.

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Americans spent $621 billion at retail stores in June, a surprise increase from May

Target Black Friday
  • The Census Bureau reported that Americans spent $621.3 billion at retail and food services businesses in June.
  • That’s a surprise 0.6% increase over May’s revised $617.9 billion spend.
  • Retail sales are higher than before the pandemic, spurred by stimulus and pent-up demand.
  • See more stories on Insider’s business page.

Americans spent $621.3 billion at retail stores and restaurants last month, according to the Census Bureau. That’s up 0.6% from the Bureau’s revised estimate of $617.9 billion in May. Economists expected a 0.4% decline over the month, according to Bloomberg.

The US economy is mainly a consumer economy, with personal consumption amounting to about two-thirds of the nation’s GDP. The Census Bureau’s monthly estimates of retail and food services spending gives a helpful indicator for how that crucial part of the economy is doing.

Retail sales plummeted during the early months of the pandemic, but quickly bounced back by last summer. Over the last few months, they’ve hit record highs, fueled by pent-up demand that was unleashed as the economy reopens and by the various government stimulus packages helping support Americans’ incomes.

While a little lower than the record highs in March and April, June’s figure shows Americans are still spending more than ever at retail storees and restaurants.

Spending at auto dealers and parts stores dropped 2.0% over the month, and the Bureau noted that retail and food services sales outside of cars increased a full 1.3% between May and June. The Bureau of Labor Statistics’ monthly Consumer Price Index inflation report earlier this week showed that prices for cars spiked dramatically over the month, with used car prices increasing a historical record-high 10.5%.

Americans seem to be getting ready to go out into the world more often. Spending at clothing stores increased 2.6% over the month to a seasonally-adjusted total of $25.8 billion, and spending at restaurants and bars rose 2.3% to $70.6 billion. As restaurants and bars continue to reopen and see expanded business, they are hiring hundreds of thousands of workers each month and raising pay.

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From alarm clocks to teeth whiteners to tuxedos, unexpected products are filling up Americans’ carts as the country reopens

white strips teeth whitening

Slowly but surely, the United States is opening back up again as coronavirus vaccination rates rise. And consumers are shopping accordingly.

Alarm clocks, teeth whiteners, condoms, luggage, sunscreen, party supplies like balloons, and tuxedos have seen sales spike, according to a new report from the Wall Street Journal that takes inventory of what products Americans are in search of. Beauty, grooming, and travel products have all seen a particularly large boost.

Lipstick sales in particular are expected to see a big resurgence following the CDC’s recommendation that fully vaccinated people no longer have to wear masks in most situations, as Insider’s Avery Hartmans reported.

The sales trends all point to a consumer base that is getting ready to go out and celebrate “vax summer.” In a similar vein, clothing sales have recently experienced considerable year over year gains, as shoppers seek a wardrobe reset. Walmart also reported sales indicating an upcoming “wedding boom,” after a year that saw brides and grooms forced to stall their celebrations.

For some of the categories that are enjoying a sales jump, it’s been a long road through the pandemic. In an April 2020 report, Coresight Research found that beauty brands were relying on “personal outreach to consumers” in order “to form deeper connections through digital.” That digital connection appears to be starting to pay off, now that many shoppers are prepping to go out with friends for the first time in over a year.

The trend of increased sales in the beauty, grooming, and special events categories is also occuring despite recent inflation. Products like certain meats, cheeses, and wines, items that require computer chips, and major purchases like cars and homes have all seen a considerable price increase lately.

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Companies like Clorox, General Mills, and Whirlpool are sounding the alarm on price hikes for products like trash bags, breakfast cereal, and household appliances as production costs increase

groceries self checkout supermarket grocery
  • Americans are continuing to feel the pinch from rising prices on a number of staple products.
  • Certain food items, household products, appliances, cars, and homes are all seeing prices surge.
  • The Federal Reserve has said that it believes the price spikes are temporary.
  • See more stories on Insider’s business page.

Americans are likely to experience some sticker shock as prices for key products spike due to rising demand and supply chain snags.

The Wall Street Journal recently cited leaders from companies like Clorox, General Mills, and Whirlpool sounding the alarm on price spikes for products like breakfast cereal, trash bags, and household appliances. Reasons for rising prices run from pent-up demand due to rising vaccination rates, pandemic-related delays, manufacturing issues around key components like computer chips, and logistical tangles.

The Consumer Price Index spiked 0.8% in April, signalling a 4.2% year-over-year surge in prices. That means that Americans could feel a pinch when paying for meats like bacon and hot dogs, imported foods like cheese and wine, and fuel – also thanks in part to a cyberattack on the Colonial Pipeline in the southeast.

And skyrocketing prices are affecting a number of aspects of consumer’s lives, outside of trips to the grocery store and the gas station. Used cars and trucks saw a record-breaking 10% price jump in April, partly due to an increased demand and a computer chip shortage. The red-hot home market has seen significant price surges, with a year over year increase of 11.3% in March. That’s been tied to a massive increase in lumber prices, which are around 85% year-to-date.

But so far, the Federal Reserve has declined to introduce new policy around inflation. Speaking at a press conference in late April, Federal Reserve Chairman Jerome Powell said that inflation readings “are likely to rise somewhat further before moderating.”

“We are also likely to see upward pressure on prices from the rebound in spending as the economy continues to reopen, particularly if supply bottlenecks limit how quickly production can respond in the near term,” he said. “However, these one-time increases in prices are likely to have only transitory effects on inflation.”

Wharton professor Jeremy Siegel accused Powell of being far too “dovish” on inflation.

“I’m predicting here that over the next two, three years we could easily have 20% inflation,” he said on CNBC.

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Expedia and Marriott rise as stimulus checks and easing restrictions boost optimism for travel and hospitality

family travel road trip
  • Expedia stock ended Thursday’s session at a record high and Marriott gained as travel optimism grew.
  • The US will begin sending $1,400 checks after President Biden signed off on a stimulus package.
  • New York State will lift some travel restrictions starting on April 1.
  • See more stories on Insider’s business page.

Shares of Marriot and other hotel chains pushed toward record highs Thursday as investors anticipated that new stimulus checks for millions of Americans and relaxed travel restrictions will lead to more bookings.

Hotel names rode up alongside other consumer discretionary stocks, in turn drawing the Consumer Discretionary Select Sector SPDR Fund up by 1.5% at the close.

Online travel bookings site Expedia rose by 2.1% at end at a record close of $171.08. Marriott tacked on 1.6% to end at $148.83, a third winning session. The stock two weeks ago logged its all-time high of $159.98.

The S&P 500 closed at an all-time high Thursday, the same day President Joe Biden signed off on a $1.9 trillion fiscal stimulus package passed by Congress. With his signature, the government will begin sending $1,400 checks to most Americans with the aim of assisting them until the economy fully recovers.

Some industry watchers have said consumers having more spending money can help the travel sector recover from the coronavirus crisis, but hurdles remain. The pandemic is still not over and millions of Americans are still out of work, they’ve cautioned.

But COVID-19 case counts “continue to decrease every day,” as more people are vaccinated, New York Governor Andrew Cuomo said Thursday as the state lifted its requirement for domestic travelers to quarantine after arrival, effective April 1. International travelers will still be required to quarantine.

Among other travel stocks, Hyatt rose 1.6% and InterContinental Hotels Group added on 0.6%. Hilton had been more than 1% higher intraday before turning lower, ending down by less than 1%.

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Americans have saved $1.6 trillion since the pandemic began. 3 shocking facts show how big that is.

americans spending
With $1.6 trillion in savings, Americans are set to spend.

Americans are ready for a shopping spree.

Coronavirus lockdowns and two stimulus packages left American consumers sitting on approximately $1.6 trillion of pent-up spending, according to Commerce Dept. figures released on Friday.

As the pandemic shut down the experience economy, Americans shifted away from social leisure – recreational time spent in groups – and toward activities enjoyed alone. Now, 11 months later, spending on this kind of solitary leisure hasn’t been enough to bring the economy back to its 2019 levels, let alone beyond. The many Americans who weren’t hit by job loss or pay cuts have built a fatter savings cushion than they would have otherwise.

Three striking data points put the American consumer’s $1.6 trillion in dry powder into perspective.

(1) Americans account for half of global savings during the pandemic

Worldwide, consumers saved an extra $2.9 trillion globally during the pandemic, per Bloomberg Economics estimates.

That means Americans’ $1.6 trillion in savings accounts for slightly more than half of the global number, followed by China, Japan, and major European nations like Spain and the UK.

Bloomberg expects these savings to continue to grow as restrictions continue and governments implement more stimulus, notably President Joe Biden’s $1.9 trillion relief package. But as the vaccine rollout picks up speed, more spending may happen sooner rather than later.

(2) American savings are equivalent to South Korea’s GDP

The amount of spending money Americans are currently sitting on is the equivalent of another major industrialized country’s economy. As of 2019, South Korea’s GDP, or annual output, was $1.6 trillion.

For context, America’s GDP is $21.5 trillion.

Experts are currently projecting 4.6% growth for US GDP this year, per Bloomberg. If Americans spend all the money they saved in the past year, that could jump to 9%; whereas if they don’t, the GDP forecast could drop to 2.2%.

(3) Americans saved more than the decline in spending

Experts continue to debate how big a hole the coronavirus left in the economy. Biden, Wall Street, and the Federal Reserve see a larger hole, while the Congressional Budget Office (CBO) and moderates see a smaller one, Insider’s Ben Winck reported.

According to the Congressional Budget Office, the potential total output of the US economy as of the fourth quarter of 2020 was about $22.15 trillion. But the Bureau of Economic Analysis’ estimate for GDP that quarter was just $21.49 trillion, suggesting an output gap of around $660 billion.

Americans’ $1.6 trillion in savings is therefore roughly $1 trillion bigger than the output gap. That means consumers won’t need to collectively spend the entirety of their pandemic savings to close the output gap.

While the full $1.6 trillion is unlikely to be spent, the changes seem good that the output gap will be more than filled when the economy eventually reopens. In fact, it could be more spending than the US economy has seen in some time, given the historically weak recovery from the Great Recession of 2008.

It’s why so many economists are predicting that lockdown lifting will see the biggest boomtime in a generation, potentially ushering in a new era in the US economy.

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