Pent-up consumer demand fuels post-pandemic spending spree
American consumers are emerging from a year of lockdown and isolation with their wallets out, fueling a spending spree that could help ailing businesses that struggled to survive the pandemic.
New data from several major financial institutions shows consumer spending up dramatically over the same period a year ago, when states ordered all but essential workers to stay home. The data also shows spending levels exceeding the same period in 2019, a year before the pandemic, an indication that consumers are both ready to spend their money and bullish on the future.
“We’re well above where we were even in April of 2019, and I think that speaks broadly to the additional stimulus that people have received,” Wayne Best, the chief economist at Visa, told The Hill.
Visa’s Spending Momentum Index, a measure of how cardholders spend their money and how much they are spending, shows 65 percent of consumers are spending more than they did a year ago and 51 percent are spending more than they did at a similar time in 2019.
Data from Mastercard’s SpendingPulse barometer shows Americans are spending more on big purchases that usually require visits to showrooms. Sales of furniture are up 21 percent from 2019 and up 72 percent from last year. Jewelry sales have risen 14 percent from two years ago and more than tripled since 2020. Sales at department stores have risen almost 10 percent from 2019.
“April’s retail sales growth reinforces that the American consumer is healthy and eager to spend, especially on categories such as restaurants, which have faced restrictions over the past year,” said Steve Sadove, a senior adviser at Mastercard. “The fact is that people are excited to gather again and they’re refreshing their look for the occasion.”
Sales at restaurants in April more than doubled from last year, according to Mastercard’s data. Restaurant sales were up a more modest 6 percent over April 2019. Fast-food establishments saw their sales increase almost 22 percent, while full-service restaurants were still down 13 percent over April 2019.
A part of the increase in spending comes from rising prices, as the global logistics chain stretches to meet demand and shortages of items like semiconductors and home-building supplies spikes costs. The Consumer Price Index has risen 4.2 percent in the last year, according to the Bureau of Labor Statistics (BLS), the fastest rate of increase since 2008.
Still, the burst of spending in March was not matched in April, at least when measuring monthly gains, according to government figures released last week. Spending last month was little changed after the 10.7 percent explosion in March.
Global demand has put new strains on retailers and wholesalers who are struggling to maintain inventory. The Logistics Managers Index, a measure of the freight industry, is at the highest point recorded since it began in 2016, a sign that consumers are spending more heavily on e-commerce and transportation and fuel costs are rising. The cost of a single container shipped from Asia to the United States is up to $5,000, about double the price from last year.
“Pent-up demand has led to a ramp-up in both the consumption and production of consumer and industrial goods,” the authors of the index wrote in a monthly report issued last week. “The combination of increasing demand and increasingly restricted supply will likely continue to be an issue going forward.”
Stimulus payments made through the $1.9 trillion American Rescue Plan and earlier rounds of coronavirus relief legislation have spurred new spending as well. About a quarter of stimulus money has been spent, while consumers use another 35 percent to pay down debts. Forty percent typically goes into savings, Visa’s Best said.
Vaccination rates are also playing a role in spending habits.
The spending data is strongest in cities with high rates of people who have been vaccinated against COVID-19, Best said. While big cities suffered some of the steepest economic drop-offs in the early months of the pandemic, those cities are rebounding fastest. Smaller cities did better early in the pandemic, meaning those areas had less ground to make up once the economy began to reopen.
“If we look at vaccination rates, that can really unleash spending momentum that had been restrained by the pandemic,” Best said. “The data is pretty solid to show that having vaccinations causes people to have more comfort and they end up showing up in terms of spending.”