America’s consumers are likely to play a critical role in driving the economic recovery as states across the country begin lifting stay-at-home orders and loosening restrictions on nonessential businesses.
The U.S. economy is expected to see nearly a 35 percent hit in the second quarter due to COVID-19. But many economists now predict that the economic growth will resume in the third quarter. And despite an uncertain path to recovery, consumers are expected to become more optimistic if the stock market continues to rise and more states safely reopen their economies.
“We’re going to have a great third quarter, a great fourth quarter,” President Donald Trump said on May 29 during a roundtable discussion on reopening, with industry executives at the White House.
“I think next year is going to be one of our better years.”
The pandemic has led to unprecedented job losses and derailed consumer confidence. More than 40 million Americans have filed for unemployment benefits since March.
A silver lining is that overall personal income surged 10.5 percent in April, boosted by rescue payments, including one-time $1,200 stimulus checks. And millions of workers who lost their jobs received an additional $600 a week, which more than doubled the weekly unemployment benefits in most states.
With the nationwide lockdowns, however, Americans haven’t had a chance to spend the money, causing consumption to drop by 13.6 percent in April, according to data by the Commerce Department.
As income rose and spending fell, the savings rate climbed to 33 percent in April from 12.7 percent in the prior month. Economists say this dramatic surge in savings gives consumers significant spending power in the second half of the year.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, has been an important source of domestic growth.
“As we open and as the stores open, we are going to see a boom in spending,” White House economic adviser Larry Kudlow said during the roundtable.
The savings rate is “almost 10 times the norm,” he said, adding that he is seeing good signs of “green shoots.”
The growth in spending will also help boost freight shipping, air travel, and hotel bookings, he noted.
Gap Inc., which has 2,500 stores throughout the United States, has started the reopening process.
“Prior to COVID, we had over a million American customers walking through our doors every day,” Gap Chief Executive Sonia Syngal said at the roundtable discussion.
The company operates Old Navy, which is the second-largest apparel brand in the country, as well as the Athleta, Banana Republic, and Gap brands.
Syngal said the company lost 70 percent of sales overnight due to the shutdown that began in March and had to furlough workers as a result. She hopes to bring more than 100,000 employees back to work with the reopening.
She said Gap has deployed “safe shopping protocols” in line with other retailers that include social distancing, as well as providing masks and sanitizers to customers inside the stores.
“We’re anxious to reopen our stores with these protocols and have been excited about what’s happening so far as we’ve opened,” she said. “Our employees feel safe, our customers feel safe, and they’re coming back to shop with us.”
She said Gap is on track for opening at least 800 stores as states began lifting restrictions.
The retail industry is the country’s largest private-sector employer, supporting 1 in 4 American jobs.
The sector has been in turmoil for years and the pandemic has pushed many retailers to the economic brink. Some big names including J. Crew, Neiman Marcus, Stage Stores, and J.C. Penney filed for bankruptcy in May.
Speaking during the roundtable at the White House, David Hoffman, CEO of Dunkin’ Brands Group Inc. said he has started to see “a lot of hope and optimism” in his business.
He said 90 percent of Dunkin’ Brands restaurants, which includes Dunkin’ Donuts and Baskin-Robbins, remained open during the crisis.
“We’re seeing really good signs of encouraging green shoots right now,” he said. “We’re working with the franchisees, again, to get America working again, looking at a really aggressive hiring campaign over the summer.”
The nation’s top bank economists believe that consumer spending will see a “huge rebound” in the third quarter as reopening takes place around the country.
The American Bankers Association’s Economic Advisory Committee, composed of 17 economists, forecast that personal consumption will surge nearly 22 percent in the third quarter after contracting 42 percent in the second quarter.
However, these projections are highly dependent on whether people feel safe enough to go back to stores, restaurants, and movie theaters.
“Consumer spending may be constrained for some time, with consumers unsure about job security and pay,” the committee said in a statement.
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