Winter CPG Economic Pulse
Will the Economy Fall Victim to a Long, Dark Winter?
The U.S. economy continues to make strides forward despite a host of challenges, from the widespread acceleration of COVID-19 cases to the stalemate in additional federal stimulus. The longer-term economic future may hinge on the outcome of today’s FDA panel meeting to decide on an emergency use authorization for Pfizer and BioNTech’s vaccine. The near-term, however, depends heavily on the House and Senate striking a deal before extended unemployment benefits and eviction moratoriums lift at the end of the month.
Looking at this Month’s Indicators
Continued at-home consumption keeps demand high.
CPG purchases post strong growth rates going into the holiday, with year-over-year growth of 10.4% in October, putting four of the last five months above 10% annual growth. The trend suggests that, as people continue to stay at home, spending on food, beverage, household and personal care products will keep pace over the holidays. Consumer Brands anticipates that CPG purchases will be up between 9.5-11.5% for the 2020 holiday season.
- CPG Purchases % Change Yr/Yr
E-commerce exploded for food and beverage products.
Changed circumstances have led to new habits, pushing more grocery shopping online. The Census Bureau’s e-commerce release in November showed third quarter online spending for food and beverages totaled $6.5 billion, an increase of 162% over the same quarter a year earlier. Further, in 2019, the food and beverage portion of e-commerce averaged a sleepy 1.6% share of all e-commerce purchases; in 2020, that share has doubled to 3.3% of all e-commerce measured in the third quarter. The dramatic rise reveals a growing confidence in shopping online for grocery products that is expected to develop into a lasting behavior for the majority of consumers. A recent Consumer Brands survey found that 55% of consumers who used online ordering for grocery products planned to continue to use it regularly after the pandemic.
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- Food and Beverage Percentage of E-Commerce
Consumer confidence continues to slip on uncertainty over vaccine efficacy and perceived return of product shortages.
U.S. consumer sentiment slipped in November to its lowest level since August as COVID-19 infections reached new highs. The final reading from the University of Michigan was 76.9, down nearly 5 points from 81.8 in October. Sentiment readings have shown a disconnect from spending during the pandemic and are evidence of the economy’s shaky foundation. Even the cycles of good vaccine news haven’t been enough to quell uncertainty over if it will work and how long it will take to return to normal. Further contributing to consumer angst are the return of retailer limits on high-demand CPG products that, while responsible, resuscitate last spring’s fears of shortages and empty shelves. Consumer Brands CEO Geoff Freeman told The Washington Post, “I’m not going to be a Pollyanna and say things are perfect, but we are fundamentally in a different place than we were in March and April. Even retailers rationing is a demonstration of lessons learned. The psychology of empty shelves causes a vicious cycle.”
- University of Michigan Consumer Sentiment
November job growth offers downside surprise as personal savings and income changes raise new questions.
With nonfarm payrolls rising by just 245,000 and labor force participation declining again, this time by 400,000 fewer people actively looking for a job, there is new pressure on Congress to reach a deal on extended unemployment benefits. Also contributing to a shaky economic foundation is the declining savings rate and reverting personal income levels. While the savings rate is still elevated, it slipped to 13.6% in October from an upwardly revised 14.6% in September. Disposable personal income increased 6.2% in October on a year-over year basis but slipped from the upwardly revised 7.3% in September. The next few months are a critical stretch for the economy and the labor market. With things like personal income and savings that have helped mitigate the economic damage from the pandemic showing cracks, payroll gains take on heightened importance to reinforce that the economy is getting stronger, not weaker, as the race to approve and administer a vaccine and ease lockdown measures continues.
- Disposable Personal Income % Change Yr/Yr
- Personal Consumption % Change Yr/Yr
What can the CPG industry expect through the rest of 2020?
Consumer Brands’ Holiday Forecast put forward an expectation of 9.5-11.5% growth for the season. While holiday parties and festivities generally lead to an increase in CPG sales around 3% in normal years, this year’s lack of merriment will not hurt the industry. Rather, it will change the driver of growth. Given the rampant increase in COVID-19 cases, new stay-at-home orders rolling out and a return to the fear seen early in the pandemic, at-home consumption could grow even higher in December, which would push the likelihood that CPG purchases hit the high end of the holiday forecast.
Where is the good news in the economy?
Real-time gauges of economic activity continue to show an economy on a recovery trend. The Conference Board’s Leading Economic Index rose 0.7%, similar to the gain in September and the 1.6% jump in August. Six consecutive months of increases is encouraging. The most recent New York Federal Reserve Weekly Economic Index (WEI) improved from a -4.03 in the fourth week of October to a -2.7 in the fourth week of November. If this reading persists for the entire fourth quarter, it is expected that GDP will be approximately 3% lower than a year earlier.
How soon will the economy return to where it left off in February?
The time it will take for the U.S. to return to its pre-pandemic level has shortened in the eyes of many experts. Panelists with the Blue Chip Economic Survey are more optimistic in November compared to their September predictions. Sixty-one percent of the panelists believe that the economy will have returned to pre-pandemic GDP levels by the second half of 2021; 22% expect to reach that level in the first half of 2022. This compares to their September expectation of only 28% by the second half of 2021 and 49% by the first half of 2022.
Even in ample darkness, the silver linings of the economy shine bright. The economic future hangs on vaccine approvals and what deal, if any, Congress can strike before extended unemployment benefits end this month.
About This Research
Consumer Brands’ CPG Economic Pulse 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 data in this report is released on a rolling calendar schedule. The figures presented are current at the time of publication and are subject to updates and revisions.
Economic analysis provided by JEK Analytics.
The CPG purchases data is derived from U.S. Bureau of Economic Analysis reporting.
Estimates include food, nonalcoholic and alcoholic beverages for off-premises consumption; food purchased and consumed on farms; nonprescription drugs, household supplies and personal care purchases; and net purchase of goods by U.S. residents abroad.
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