Consumer Spending Statistics and Current Trends
Consumer Spending Plummeted 34.1% in Second Quarter 2020
Consumer spending, also known as personal consumption expenditures (PCE), refers to the value of the goods and services bought for or by residents of the United States. The Bureau of Economic Analysis reports consumer spending at an annualized rate in order to compare it to gross domestic product (GDP).
Consumer spending statistics help provide a picture of the financial health of the economy at large, so businesses that monitor them can better predict consumer behavior.
The economy contracted 34.1% in the second quarter of 2020 because of the COVID-19 pandemic.
Current Consumer Spending
PCE was at $13 trillion in the second quarter of 2020, according to the Bureau of Economic Analysis (BEA). That's down 31.7% from the first quarter of 2020, which was already down 5% from 2019.
Spending fell as governments required nonessential businesses to close to slow the spread of the pandemic. Millions of people were furloughed.
Spending goods fell by 10.6%. That includes spending on durable goods, like automobiles, which fell by 1.3%. Spending on nondurable goods, like groceries, fell by 14.9%. Spending on services, like hair salons, fell by 43.1%.
Consumer Spending History
Strong consumer spending is the main reason the GDP growth rate had been within a healthy range of 2% to 3% since the Great Recession. As the table below shows, consumer spending has remained close to that healthy range since 2010, following the financial crisis.
Retail Sales Were Strong Until the Pandemic Hit
U.S. retail sales in the second quarter fell 8.1% from the same quarter in 2019, according to Census Bureau data. The annualized rate well below the 3% annual retail sales growth rate viewed as desirable. Stores shut down and consumers stayed home to avoid the pandemic. This contributed to a 24.9% increase in online sales, as shoppers felt safer having their goods delivered.
This accentuated a long-term trend. Online sales for Black Friday in 2019 grew by 19.6% over the previous year, according to Adobe data. Brick-and-mortar store sales increased by only 1.6% from 2018, says RetailNext.
Consumer spending continues to shift toward online shopping versus shopping in brick-and-mortar stores. This will increase dramatically as a result of the coronavirus pandemic.
Why Consumer Spending Matters
Since consumer spending is such a large component of GDP, it is a leading economic indicator. If spending is flat, economic growth may also be anemic, which can increase recession fears.
Beyond forecasting the economy, consumer spending statistics also help retailers evolve in a way that appeals to consumers so that they can remain in business. These companies have had to cope with flat consumer incomes for decades.
How Retailers Have Responded to Changing Consumer Expectations
Retailers now have to contend with shoppers who expect high value combined with low prices. As a result, Amazon and other online stores have stolen business from brick-and-mortar stores. Companies that depend exclusively on a low-cost or a high-value competitive advantage have fallen behind. Instead, the retailers today must provide both.
Those companies that don't strike the right balance between value and price could lose their customers permanently.
Factors That Impact Consumer Spending
For business owners looking for ways to appeal to consumers, three trends should factor into their planning.
Spending took a long time to bounce back from the recession. First and foremost, millions of people went back to school to find new careers. That cut back on shopping. But don't blame credit card debt alone, which surpassed pre-recession levels in 2017. Home and student loan debt are also major contributors to overall consumer debt. Increases in consumer debt can curb future spending.
Average income levels have not kept pace with growth in either the stock market or GDP. That's partly because jobs have been outsourced to cheaper labor in China, India, and low-wage manufacturing in Asia. Despite changes to the North American Free Trade Agreement and other free trade agreements, some manufacturers may still choose to cut jobs locally and hire abroad. Employees who lose jobs may have cut back on spending and increased saving to make up for income shortfalls.
Many analysts look to the Consumer Confidence Index, a measure of how Americans feel about the economy, to predict how likely it is consumers will spend. People are more likely to shop when they feel confident about their ability to get a more lucrative job. Until the 2020 recession, numbers were inching higher.
U.S. Bureau of Economic Analysis. "Consumer Spending." Accessed Feb. 6, 2020.
Bureau of Economic Analysis. “National Income and Product Accounts Tables," Table 1.1.1. Percent Change From Preceding Period in Real Gross Domestic Product. Accessed August 28, 2020.
Bureau of Economic Analysis. “National Income and Product Accounts Tables," Table 1.1.5. Nominal GDP. Accessed August 28, 2020.
Statista. "Annual growth of the real Gross Domestic Product (GDP) of the United States from 1990 to 2019." Accessed Feb. 6, 2020.
U.S. Census Bureau. "Advance Monthly Sales for Retail and Food Service," Table 2. Estimated Change in Monthly Sales for Retail and Food Services, by Kind of Business. Accessed July 26, 2020.
Adobe Blog. "Adobe Data Shows Record Cyber Monday With $9.2 Billion in Online Sales." Accessed Feb. 6, 2020.
RetailNext.net. "Brick-and-Mortar Stores Enjoy Strong Start to Holiday Shopping Season." Accessed Feb. 6, 2020.
National Retail Federation. "NRF Says ‘State of the Economy Is Sound’ and Forecasts Retail Sales Will Grow Between 3.8 and 4.4 Percent." Accessed Feb. 6, 2020.
Consumer Financial Protection Bureau. "The Consumer Credit Card Market," Page 26. Accessed Feb. 6, 2020.
Trading Economics. "United States Consumer Sentiment." Accessed Feb. 6, 2020.