Consumer remains key for US economy

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With the US economy so dependent on the power of consumer spending, how might the upcoming presidential election outcome alter the sector’s outlook? Could the prevailing and future political landscape take a back seat to bigger influences driving change in the retail sector?

There are many that believe the world of today is also the world of tomorrow – in that there will be no return to pre-pandemic norms. But from a consumer point of view, are we experiencing a ‘new normal’ or one that continues to transform at accelerating pace?

Future economic policy will also play a role in determining this, as bail out packages and support for the unemployed remain vital to keep consumers spending, which is why Maria Toneva, consumer analyst at Newton, says many eyes are already focused on the US November election. While its outcome is likely to determine prospects for typical areas of concern such as tariffs, the price of goods, the potential for trade wars, and the backdrop for M&A activity, the biggest impact this time may well be determined by the shape and scale of ongoing stimulus packages. Consumer spending, particularly in economies such as the US is of vital importance. One of the areas hit hardest in a typical recession is consumer spending on goods and according to news reports, the US is now enduring its worst recession in some 80 years.¹ Yet spending has so far remained relatively sanguine, albeit selectively.

Some commentators suggest the better numbers over the summer may just be a reflection of spending from wealthier consumers with secure jobs, illustrating the maxim that the 20% of wealthiest Americans account for up to 80% of all discretionary spending.²

This is why Toneva says her primary concern is not anti-China rhetoric but future job losses and their potential to disrupt US consumer spending and the retail sector.

Investors who analyse retail are less worried about tariffs moving forward but are more cautious as to what will happen with the consumer environment if Trump rolls back the US’s Supplemental Nutrition Assistance Program (SNAP) benefits³.

Toneva says benefits received by Americans amid the US lockdown, particularly with respect to unemployment benefits, have been helpful but there is uncertainty as to whether this support will continue from either political party post November. Toneva believes the Democrats are more ‘pro-spend’ in this respect, so overall, consumers and retail companies may do better with a Joe Biden victory.

Although the focus may be on US consumer reactions to the ongoing stimulus packages, it doesn’t mean global analysts aren’t also having to watch some of the commentary taking place around trade and manufacturing. One area many continue to watch carefully concerns US/Sino trade tensions. Having subsided somewhat during the height of the global Covid-19 lockdowns, in early September President Trump spoke about the US ‘decoupling’ from China, saying he wanted to make America into the manufacturing superpower of the world and ending the country’s reliance on China.⁴

Covid-19 impact

At the start of this US election year, the future of retail companies and any real political impact was expected to be a minor consideration. The onset of Covid-19-related lockdowns changed that. Suddenly the whole world was buying online and the likes of Amazon bucked the consumer trends. While job losses rose to record highs in the US in early spring, Amazon hired 175,000 workers to help keep up with demand; its e-commerce sales growth even accelerated to c48% in the second quarter.⁵

Toneva says food delivery companies such as UberEats, DoorDash and Skip The Dishes also profited from consumers not being able (or wanting to) leave their homes during global lockdowns.

Retail is such a huge area. For example, any product related to travel may take years to recover from the pandemic but grocery companies saw sales go up 10-20% through the second quarter.If they can maintain this elevated demand in a post-Covid world, those companies can be very successful,” says Toneva. “The future of some of the retailers depends on the specific sector they are operating in. The pandemic hasn’t been bad for all of retail. It’s very nuanced. Food retail is having the best year it has had in decades whereas apparel bricks-and-mortar stores have been left devastated.” While Toneva agrees the world is unlikely to go back to the way it was in terms of shopping habits, there is still a question over who will be the winners and losers in the realm of online and bricks-and-mortar stores.

Looking for value

Regardless of the outcome of the election, Toneva believes the challenges and opportunities of retail investing in a post-pandemic world will be very similar if not the same, regardless of who is voted into power.

Irrespective of the election outcome, Toneva believes that from a retail investment standpoint, companies offering less expensive products might fare best. She highlights three areas she believes will continue to be of interest to investors: e-commerce, value and convenience. With regard to value, dollar stores in the US and discounter stores are doing well during this time, she says. “Convenience is mainly highlighted through food delivery companies maintaining their recent heightened popularity. Although restrictions have eased in many parts of the world, consumers are still attracted to the appeal of paying to have meals delivered to their homes versus going out to restaurants and putting themselves in potentially busier and riskier areas.

Apart from the important financial support Trump or Biden will give to the unemployed, I don’t see either election outcome having as big an impact on consumers as the ongoing pandemic. The latter is imposing a real and lasting structural change to the way we consume, and that disruption is likely to continue whether we have a Republican or a Democrat in power,” Toneva says.

¹Forbes. In today’s deep recession, consumer spending on goods is above pre-pandemic levels. Why? 12 August 2020.
²Marketwatch. The numbers tell us the economy is better but millions of Americans aren’t feeling it. 12 September 2020. 
³SNAP is a US Federal program that helps low-income working people, senior citizens, the disabled, and others feed their families. 
New York Post. Trump pledges to ‘decouple’ US from China, accuses Biden of ‘economic treachery’. 7 September 2020. 
The Motley Fool. Amazon explosive e-commerce growth accelerating. 9 September 2020.

Important information:

https://www.bnymellonim.com/outlook/global-disclosure/

GE 107490 22 DEC 2020

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