Impact

November CPG Economic Pulse

Consumers show resiliency and willingness to adapt lifestyle and spending habits — while socking away savings.

The U.S. economy boomed in the third quarter, increasing an annualized rate of 33.1%. The increase followed a record shattering 34.1 percent plunge in the second quarter, answered by following with a 40.7% surge in consumer spending. However, the economy is still well below pre-pandemic levels. The U.S. economy lost $2 trillion in GDP due to the pandemic and has since regained $1.3 trillion of that lost output. Even with impressive third quarter growth, recouping the remaining $700 billion will take quite a bit longer.

Although real GDP grew at a record pace in the third quarter, it is currently projected to grow at an annualized rate between 3% and 5%. Many analysts contend that unless Congress gets agreement on a stimulus package the economy could falter early next year. The lack of fiscal support is significant to the near-term outlook as unemployment benefits are down and creating negative momentum for household spending. The above average household savings over the past six months may counter that momentum and allow for continued consumption levels.

But the negative outlook may be overturned by Pfizer’s announcement this week of a successful vaccine trial. The stock market soared on the news, which will hopefully nurture the continued recovery in a meaningful way in the months ahead.

Looking at This Month’s Indicators

CPG purchases continue their strong pace. CPG sales experienced year-over-year growth of 10.2 percent in September, putting three of the last four months above 10%. The trend suggests that, as people stay at home, spending on food, beverage, household and personal care products will keep pace over the holidays.  According to the U.S. Census Household Survey of October 12, households have continued to spend between $250 and $300 per week on food intended to be prepared and eaten at home. As a percentage of all food purchases, those on food to be prepared and eaten at home has declined from 74% in April to 71% in October, though that could rise with the upcoming holiday season.

    • Sep-19
    • Oct-19
    • Nov-19
    • Dec-19
    • Jan-20
    • Feb-20
    • Mar-20
    • Apr-20
    • May-20
    • Jun-20
    • Jul-20
    • Aug-20
    • Sept 20
    • CPG Purchases % Change Yr/Yr
    • 3.2%
    • 3.1%
    • 1.9%
    • 4.1%
    • 1.7%
    • 3.3%
    • 20.8%
    • 5.9%
    • 9.9%
    • 10.2%
    • 10.3%
    • 9.1%
    • 10.2%

Personal income and savings have the potential to sustain spending. Income, consumption and saving data suggest that is it very possible consumer spending will stay strong into the holiday season; however, weakening could occur if confirmed coronavirus cases continue to accelerate. Disposable personal income increased 6.9% in September on a year-over-year basis, after hitting its low water mark of 2% in March. The rise in income was bolstered by the strength in wages and salaries reflecting recent payroll gains during the third quarter — employee compensation rose 0.8% in September and 1.3% in August. The household savings rate, while lower than April’s 33% — the highest rate since the government started keeping track — is still healthy at 14%. Income and savings have helped bolster retail sales that have been up both month-to-month and year-over-year each month since June, following record drops in the spring.

    • Sep-19
    • Oct-19
    • Nov-19
    • Dec-19
    • Jan-20
    • Feb-20
    • Mar-20
    • Apr-20
    • May-20
    • Jun-20
    • Jul-20
    • Aug-20
    • Sept 20
    • Disposable Personal Income % Change Yr/Yr
    • 3.4%
    • 3.3%
    • 3.6%
    • 2.5%
    • 3.4%
    • 3.9%
    • 2.0%
    • 17.0%
    • 11.3%
    • 9.4%
    • 10.0%
    • 6.2%
    • 6.9%

The recovery in the economy and the labor market remains on track. The economy beat expectations in October, adding 638,000 jobs. Employment has increased for six consecutive months, bringing the jobless rate down to 6.9%. Meanwhile, continuing claims for unemployment insurance benefits signal ongoing improvement, falling from 7.82 million the week ending October 17 to 7.29 million the week ending October 24.

    • 2018 Q2
    • 2018 Q3
    • 2018 Q4
    • 2019 Q1
    • 2019 Q2
    • 2019 Q3
    • 2019 Q4
    • 2020 Q1
    • 2020 Q2
    • 2020 Q3
    • 2020 Q4 (Forecast)
    • % Real GDP Growth
    • 2.7
    • 2.1
    • 1.3
    • 2.9
    • 1.5
    • 2.6
    • 2.4
    • -5
    • -31.4
    • 33.1
    • 4
    • % Unemployment Rate
    • 3.9
    • 3.8
    • 3.8
    • 3.9
    • 3.6
    • 3.6
    • 3.5
    • 3.8
    • 13.0
    • 8.8
    • 7.6

Looking Ahead

Will the economy get worse before COVID-19 gets better? If a vaccine becomes available, it will take time to deploy. At present, coronavirus cases are worsening across the country, which is a reality that is overshadowing the historically strong third quarter gains and threatening a less successful fourth quarter. The concerns may have an adverse effect on spending, but the data does not show any fallout yet. The University of Michigan’s consumer sentiment rating was 81.8, up 1.5 points from September, which is notable for how little it changed.

 

 

Will the pace of recovery change and when? The Conference Board’s Leading Economic Index increased for the fifth straight month: the September index rose 0.7% following a 1.4% increase in August and a 2% rise in July. Real-time gauges of economic activity, such as the Federal Reserve’s weekly economic indicator, continues to show an economy that is on a recovery trend. The index registered a -3.32 on October 24 moving up from a -4.9 a month earlier. These real-time assessments will take on new meaning as positive vaccine news take center stage.

 

 

What might cause changes in consumer spending?  According to the U.S. Census Household Pulse survey of October 12, household spending on goods and services have remained unchanged for the past three months. Changes would be driven by fears of going to public or crowded places or having contact with high-risk people (27%), concerns about the economy (17%) and worries over loss of income (13%). The Census also probed further on loss of income and found that fewer than one in four households (23%) expect a loss of employment income in the next four weeks. This measure of worry has declined consistently over the past six months; in April, 39% of households expected such a loss in income. The lower rate of concern over income will have significant bearing on what happens with consumer spending next and the better than expected jobs report is a good indicator for where the numbers will head next month.

This week brought good news, but economic uncertainty still prevails. How the vaccine potential plays out, from FDA review to deployment, will take time and will have significant bearing on everything from consumer confidence to the labor market.

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.

 

Methodology

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.

The Economic Contributions of CPG

The CPG industry is the largest manufacturing employer in the United States. The food, beverage, household and personal care products that the industry makes have a positive impact on the lives of every American, every day.

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