Markets

How COVID-19 Consumer Spending is Impacting Industries

Published

1 year ago

April 22, 2020

Katie Jones

Consumer spending impact on industry

How COVID-19 Consumer Spending is Impacting Industries

Consumer spending is one of the most important driving forces for global economic growth.

Beyond impacting some of the factors that determine consumer spend—such as consumer confidence, unemployment levels, or the cost of living—the COVID-19 pandemic has also drastically altered how and where consumers choose to spend their hard-earned cash.

Today’s graphic pulls data from a global survey by McKinsey & Company that analyzes how consumers are reining in their spending, causing upheaval across every industry imaginable.

While some industries are in a better position to weather the impact of this storm, others could struggle to survive.

The Link Between Sentiment and Intent to Spend

As consumers grapple with uncertainty, their buying behavior becomes more erratic. What is clear however, is that they have reduced spending on all non-essential products and services.

But as each country moves along the COVID-19 curve, we can see a glimmer of increasing optimism levels, which in turn is linked to higher spending.

consumer spending optimism

India’s consumers, for example, are displaying higher levels of optimism, with more households planning to increase spend—a trend that is also evident in China, Indonesia, and Nigeria.

Meanwhile, American consumers are still more optimistic about the future than Europeans. 37% of Americans believe the country will recover in 2 or 3 months—albeit with optimism levels at the highest for people who earn over $100K.

Strategic Consumer Spending

Globally, consumers continue to spend—and in some cases, spend more compared to pre-pandemic levels—on some necessities such as groceries and household supplies.

Due to changes in media consumption habits, consumers in almost all countries surveyed say they will increase their spend on at-home entertainment. This is especially true for Korea, a country that already boasts a massive gaming culture.

As restrictions in China lift, many categories such as gasoline, wellness, and pet-care services appear to be bouncing back, which could be a positive sign for other countries following a similar trajectory. But while consumers amp up their spending on the things they need, they also anticipate spending less in other categories.

The Industries in the Red

Categories showing an alarming decline include restaurants and out-of-home entertainment.

However, there are two particularly hard-hit industries worth noting that are showing declines across every category and country:

Travel and Transport

The inevitable decline in the travel and transportation industry is a reflection of mass social isolation levels and tightening travel restrictions.

In fact, the U.S. travel industry can expect to see an average decline in revenue of 81% for April and May. Throughout 2020, losses will equate to roughly $519 billion—translating to a broader $1.2 trillion contraction in total economic impact.

consumer spending travel industry

According to the World Travel and Tourism Council, a staggering 50 million jobs are at risk in the industry, with 30 million of those jobs belonging to employees in Asia.

Considering the travel and tourism industry accounts for 10.4% of global GDP, a slow recovery could have serious ramifications.

Apparel

Apparel is experiencing a similarly worrying slowdown, with consumption 40-50% lower in China compared to pre-pandemic levels. Both online and offline sales for businesses the world over are also taking a major hit.

As consumers hold back on their spending, clothing brands of all shapes and sizes are forced to scale back production, and reimagine how they position themselves.

“It’s an unprecedented interruption of an industry that has relied on speeding from one season’s sales to the next. And it is bringing with it a new sense of connectedness, responsibility and empathy.”

—Tamsin Blanchard, The Guardian

Towards an Uncertain Future

Clearly the force majeure that is COVID-19 has not impacted every industry equally.

For some, rebuilding their customer experience by appealing to changing values could result in a profitable, and perhaps much-needed revival. For other companies, there is no other choice but to play the waiting game.

Regardless, every industry faces one universal truth: life after the pandemic will look significantly different.

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Markets

Visualizing the Recent Explosion in Lumber Prices

Lumber prices in the U.S. continue to break records as pressure from both the supply and demand sides of the market collide.

Published

4 days ago

May 8, 2021

Marcus Lu

Visualizing the Recent Explosion in Lumber Prices

Lumber is an important commodity used in construction, and refers to wood that has been processed into beams or planks.

Fluctuations in its price, which is typically quoted in USD/1,000 board feet (bd ft), can significantly affect the housing industry and in turn, influence the broader U.S. economy.

To understand the impact that lumber prices can have, we’ve visualized the number of homes that can be built with $50,000 worth of lumber, one year apart.

A Story of Supply and Demand

Before discussing the infographic above, it’s important to understand the market’s current environment.

In just one year, the price of lumber has increased 377%—reaching a record high of $1,635 per 1,000 bd ft. For context, lumber has historically fluctuated between $200 to $400.

To understand what’s driving lumber prices to new heights, let’s look at two economic elements: supply and demand.

Shortened Supply

U.S. lumber supplies came under pressure in April 2017, when the Trump administration raised tariffs on Canadian lumber. Since then, lumber imports have fallen and prices have experienced significant volatility.

After a brief stint above $600 in April 2018, lumber quickly tumbled down to sub $250 levels, causing a number of sawmills to shut down. The resulting decreases in production capacity (supply) were estimated to be around 3 billion board feet.

Once COVID-19 emerged, labor shortages cut production even further, making the lumber market incredibly sensitive to demand shocks. The U.S. government has since reduced its tariffs on Canadian lumber, but these measures appear to be an example of too little, too late.

Pent-up Demand

Against expectations, COVID-19 has led to a significant boom in housing markets, greatly increasing the need for lumber.

Lockdowns in early 2020 delayed many home purchases until later in the year, while increased savings rates during the pandemic meant Americans had more cash on hand. The demand for homes was further amplified by record-low mortgage rates across the country.

Existing homeowners needed lumber too, as many Americans suddenly found themselves requiring upgrades and renovations to accommodate their new stay-at-home lifestyles.

How Many Homes Can You Build With $50K of Lumber?

To see how burgeoning lumber prices are impacting the U.S. housing market, we’ve calculated the number of single family homes that could be built with $50,000 worth of lumber. First, we established the following parameters:

Lumber requirements: 6.3 board feet (bd ft) per square foot (sq ft)
Median single family house size: 2,301 sq ft
Total lumber required per single family house: 14,496 bd ft

Based on these parameters, here’s how many single family homes can be built with $50,000 worth of lumber:

Date*	Lumber Price	Total Lumber Purchased	Total Homes Built
2021-05-05	$1,635 per 1,000 bd ft	30,581 bd ft	2.11
2020-05-04	$343 per 1,000 bd ft	145,773 bd ft	10.05
2015-05-01	$234 per 1,000 bd ft	213,675 bd ft	14.74
2010-05-01	$270 per 1,000 bd ft	185,185 bd ft	12.77

*Exact matching dates were not available for past years.
Source: Insider

As lumber prices continue to set record highs, the National Association of Home Builders (NAHB) has reported that the cost to build a single family home has increased by $36,000. Most of this cost can be passed down to the consumer, but extremely tight supplies mean homebuilders are unable to start more projects.

The Clock is Ticking

Despite their best efforts to increase output, it’s likely that sawmills across the U.S. will continue playing catch-up in 2021.

“There was a great fear among sawmills to prepare for a downturn. When home buying surged, they could not open up capacity quickly enough.”
– Lawrence Yun, National Association of Realtors

Analysts are now warning that lumber prices could reach a flashpoint, where affordability becomes so limited that demand suddenly falls off. This has led the NAHB to ask the Biden administration for a temporary pause on Canadian lumber tariffs, which currently sit at 9%.

U.S. tariffs on Canadian lumber were first introduced in 1982, and represent one of the longest lasting trade wars between the two nations. The U.S. is currently appealing a World Trade Organization (WTO) ruling that states its 2017 tariff hike was a breach of global trading rules.

Markets

Mapped: The State of Small Business Recovery in America

Compared to January 2020, 34% of small businesses are currently closed. This map looks at the small business recovery rate in 50 metro areas.

Published

2 weeks ago

April 28, 2021

Iman Ghosh

Mapped: The State of Small Business Recovery in America

In the business news cycle, headlines are often dominated by large corporations, macroeconomic news, or government action.

While mom and pop might not always be in focus, collectively small businesses are a powerful and influential piece of the economy. In fact, 99.9% of all businesses in the U.S. qualify as small businesses, collectively employing almost half (47.3%) of the nation’s private workforce.

Unfortunately, they’ve also been one of the hardest-hit sectors of the economy amid the pandemic. From the CARES Act to the new budget proposal, billions of dollars have been allocated towards helping small businesses to get back on their feet.

Small Business Recovery in 50 Metro Areas

During the pandemic, many small businesses have either swiftly pivoted to survive, or struggled to stay afloat. This map pulls data from Opportunity Insights to examine the small business recovery rate in 50 metro areas across America.

So, has the situation improved since the last time we examined this data? The short answer is no—on a national scale, 34% of small businesses are closed compared to January 2020.

San Francisco is one of the most affected metro areas, with a 48% closure rate of small businesses. New York City has spiralled the most since the end of September 2020.

U.S. Metro Area	% Change in # of Small Businesses Open (As of Sep 25, 2020)	% Change in # of Small Businesses Open (As of Apr 23, 2021)	7-month change (p.p.)
Albuquerque	-23%	-34%	-11
Atlanta	-26%	-35%	-9
Austin	-32%	-38%	-6
Bakersfield	-31%	-35%	-4
Baltimore	-28%	-35%	-7
Boston	-33%	-47%	-14
Charlotte	-18%	-28%	-10
Chicago	-27%	-38%	-11
Cleveland	-26%	-34%	-8
Colorado Springs	-23%	-28%	-5
Columbus	-21%	-28%	-7
Dallas-Fort Worth	-21%	-28%	-7
Denver	-25%	-29%	-4
Detroit	-28%	-38%	-10
El Paso	-25%	-26%	-1
Fresno	-26%	-30%	-4
Honolulu	-41%	-25%	+16
Houston	-30%	-34%	-4
Indianapolis	-25%	-34%	-9
Jacksonville	-18%	-28%	-10
Kansas City	-15%	-26%	-11
Las Vegas	-22%	-30%	-8
Los Angeles	-27%	-34%	-7
Louisville	-23%	-35%	-12
Memphis	-21%	-24%	-3
Miami	-23%	-34%	-11
Milwaukee	-22%	-27%	-5
Minneapolis	-21%	-29%	-8
Nashville	-21%	-26%	-5
New Orleans	-45%	-39%	+6
New York City	-21%	-42%	-21
Oakland	-32%	-35%	-3
Oklahoma City	-26%	-35%	-9
Philadelphia	-24%	-31%	-7
Phoenix	-19%	-31%	-12
Portland	-34%	-36%	-2
Raleigh	-16%	-29%	-13
Sacramento	-33%	-34%	-1
Salt Lake City	-18%	-23%	-5
San Antonio	-34%	-40%	-6
San Diego	-28%	-38%	-10
San Francisco	-49%	-48%	+2
San Jose	-35%	-44%	-9
Seattle	-28%	-30%	-2
Tampa	-22%	-40%	-18
Tucson	-27%	-28%	-1
Tulsa	-23%	-32%	-9
Virginia Beach	-	-36%	0
Washington DC	-37%	-47%	-10
Wichita	-15%	-28%	-13

Data as of Apr 23, 2021 and indexed to Jan 4-31, 2020.

On the flip side, Honolulu has seen the most improvement. As travel and tourism numbers into Hawaii have steadily risen up with lifted nationwide restrictions, there has been a 16 p.p. increase in open businesses compared to September 2020.

Road to a K-Shaped Recovery

As of April 25, 2021, nearly 42% of the U.S. population has received at least one dose of a COVID-19 vaccine. However, even with this rapid vaccine rollout, various segments of the economy aren’t recovering at the same pace.

Take for instance the stark difference between professional services and the leisure and hospitality sector. Though small business revenues in both segments have yet to return to pre-pandemic levels, the latter has much more catching up to do:

Small Business Recovery Supplemental - Business Revenues

This uneven phenomena is known as a K-shaped recovery, where some industries see more improvement compared to others that stagnate in the aftermath of a recession.

The Entrepreneurial Spirit Endures

Despite these continued hardships, it appears that many Americans have not been deterred from starting their own businesses.

Many small businesses require an Employer Identification Number (EIN) which makes EIN applications a good proxy for business formation activity. Despite an initial dip in the early months of the pandemic, there has been a dramatic spike in EIN business applications.

ein business applications

Even in the face of a global pandemic, the perseverance of such metrics prove that the innovative American spirit is unwavering, and spells better days to come for small business recovery.