US Economic Update (data/report): Returning to “New” Normal

The US and global economic recovery, and the lingering question of consumer confidence to get back to normal life is a top question in nearly all conversations I’ve had lately with industry executives and investors. There is no crystal ball here, we are in uncharted waters, but we do have a great deal of data at our disposal. I’ve appreciated several large banks, UBS and Morgan Stanely, specifically, who have been running regular research tracking consumer behavior and sentiment. As we near the end of May, I wanted to summarize what the data tells us so far and make a few points on the trends.

Here are a few highlights from a recent Morgan Stanley report they sent to investors.

• The virus is still the top concern among consumers, but the percent reporting it as a top 3 concern remains stable at ~ 2/3. Job loss as a top concern is also stabilizing (~1/3), while concerns about the election (38%) and inflation (34%) have been on the rise for several weeks.
• The number of consumers who believe the economy will improve in the next six months continues to trend up – 44% this wave from 28% in mid- March – while the number expecting the economy to deteriorate fell to 45% from 64% in mid-March. We see similar trends in the outlook for personal financial situations.
• Consumers generally expect to take more precautions with respect to large gatherings, spending, and travel over the next 3 months, though more are open to traveling by car.
• For the first time since mid-March we note an upward inflection in participation in some outdoor activities – 12% of consumers said they ate out at a restaurant (skewing to states that are reopened) compared to 6% two weeks ago. Intention to participate in outdoor activities continues to improve as well while the intention to participate in indoor activities is falling.

Directionally the data is much more positive than what it showed in early April. There was significantly more caution around the economic outlook and concern over personal finances than what the data is showing as we end May. With most states now moving to new phases of re-opening, reports are coming in suggesting small businesses are starting to see the pent up demand for goods and physical retail overall is seeing a gradual recovery.

It’s clear some industries will still struggle, specifically related to travel and leisure. Note the chart below from the Morgan Stanely report, signaling caution in specific behavior over the next three months.

It’s clear from this chart that cautious consumer behavior will still exist for some time. It validates the theories that the recovery will be slower and gradually get better until there is a vaccine or treatment for COVID-19. Vacation industries seem to show no signs their troubles will ease soon.

Near the bottom of the chart, 22% of people saying they will work from home more often lines up with our research, and others as well, and fits the theory that we could see 20-30% of the workforce move to a more permanent work from home situation if they can. Right now, surveys from CIO/CFOs indicated anywhere between 50-60% of the workforce is in a work from home situation right now.

Overall, the good news is nearly all economic reports, and consumer behavior research I’ve seen suggests people are gaining confidence but are still cautious and wanting to see more progress getting COVID-19 under control. Right now, there is no reason to believe the worst is still ahead of us unless we start to see a massive spike or second wave in late summer or fall. If that happens, then all the positivity we see right now is off the table.