The CPG Pulse

Welcome to the second edition of the CPG Economic Pulse, a monthly look at the CPG industry’s performance in the context of the broader economy. This report analyzes the totality of the industry — food, beverage, household and personal care products — to offer a timely look at an industry that contributes $2 trillion to the U.S. economy and supports more than 20 million jobs. 

The Deep Dive

United States gross domestic product (GDP) took a nosedive in the second quarter, declining at an annualized rate of 32.9 percent. The backslide was driven by a reduction in consumer spending at 34.6 percent annual rate. The news was distressing, albeit not surprising.

The contraction of the economy shows the depth of the recession but provides little information on the direction of the economy, as uncertainty over COVID-19 looms. The U.S. remains in recession territory, despite adding jobs and an uptick in retail sales. The bright spots in recent economic numbers, however, contend with a continued surge in COVID-19 cases, which has heightened consumer anxiety.

Consumers Wary of the Economic Future

With the virus spreading, consumer confidence has dropped. University of Michigan’s consumer sentiment reading declined in July to 72.5 from 78.1 in June, reversing a two-month trend of increases in May and June. In the past four months, the sentiment index declined 25.2 percent from the same period in 2019.

A Consumer Brands Association poll of 1,018 American adults, conducted August 7-9, found that only 22 percent of respondents feel that the worst economic consequences of COVID-19 are behind us. More than half (51%) say they believe the worst is yet to come.

CPG Purchases Remain Elevated

June purchases of CPG products built on May’s increase, growing a modest 0.1 percent, but showing a year-over-year gain of 9.1 percent, as COVID-19 continues to keep Americans homebound.

While the panic buying experienced in March and April has stabilized, consumers have not forgotten about the shortages of high-demand items. The Consumer Brands poll found that 58 percent of Americans are concerned that shortages of essential products will happen again. Only 38 percent said they were not concerned, and four percent were not sure.

As a result, respondents reported keeping goods in stock that mirror the shortages experienced at the beginning of the pandemic, with toilet paper, hand sanitizer and soap, and disinfecting wipes topping the list.

What Consumers Are Keeping Stocked Now

Jobs and Retail Sales Offer Silver Linings

The second quarter of this year that sent GDP spiraling down was dominated by a near total economic shutdown, resulting from coronavirus lockdowns. The end of the quarter, however, showed some pickup as the country slowly started to resume economic activity. Retail sales rose again in June, following May’s strong 18.2 percent increase. Overall retail sales for June were up 7.5 percent, seasonally adjusted from May, and up 1.1 percent year-over-year.

The economy added 1.8 million jobs in July, and 9.2 million over the last three months. The industries badly hurt by pandemic shutdowns — retail stores, leisure and hospitality — were responsible for a little less than half of July’s gains, adding 850,000 jobs.

The July unemployment rate of 10.2 percent continues to decline, though remains above the peak set during the Great Recession and leaves us 12.9 million jobs below the February level. Initial unemployment claims for the week ending August 1 were the best in several weeks, showing a decrease of 249,000 to 1.2 million, while continuing claims dropped by 844,000 to 16.1 million for the week ending July 25. While jobless claims are the lowest since March, they are at historically high levels and indicate a persistently struggling labor market.

What to Expect Next

Going forward, job growth will depend on the course of COVID-19 cases and will likely be in fits and starts. Consumer confidence will continue to affect economic performance, and this month’s drop suggests that next month’s consumer spending may not be as strong. The outlier to that, however, is likely the CPG industry that has been central to Americans’ ability to stay at home more. With no end to COVID-19 in immediate sight, CPG purchases are likely to remain stable with some month-to-month variation, but consistently higher year-over-year based on continued elevated demand.