MainStreet Macro: Shop til the Economy Pops

Shoppers on Main Street tell us a lot about the state of the broader economy. What you and I spend our hard-earned dollars on — whether we save or invest, buy clothes or cars, spend Saturday nights chilling with Netflix or at a bar after a game — all adds up to just how quickly the economy recovers.

For now, consumers seem to have adjusted to shopping from the comfort of home. Online sales have jumped during the pandemic, especially at my house. Over the past five years, e-commerce has accounted for about 10% of retail sales. That surged to a peak of 16% last year as Main Street households ordered everything from smoothie ingredients to new cars.

Online sales and e-commerce have become key supporting players in retail sales, which in turn are a key indicator of Main Street’s economic recovery. The recent release of retail sales data for January helps frame three questions that I’ll be asking repeatedly over the course of the year to determine the state of the economic recovery. 

1. How’s business on Main Street?

 In March and April of 2020, retail sales took a historic nosedive as stores around the country shut their doors to comply with lockdown measures intended to stop the spread of the coronavirus.

Since then, retail sales have had an uneven track record. They were the first economic indicator to rebound after the onslaught of the coronavirus. By June, retail sales were back above February levels – with one major exception, restaurants and bars, which we’ll get to in a minute.

The surge was short-lived. Starting in October, retail sales slid again for three straight months as winter brought a new spike in COVID cases.

Last week, retail sales numbers delivered great news, showing that consumers picked up the shopping habit again. January retail spending rebounded strongly, up 5.8% from a year earlier as COVID cases and hospitalization rates receded at the start of the year.

Source: St. Louis Federal Reserve Economic Research

2.  How are Main Streeters feeling?

We’ve found a way keep buying goods, but health worries and widespread rules on social distancing have dampened spending on services that require close physical contact – like college bars on half-price Thursday and Washington, D.C., watering holes during election season.

Food service sales are down 17% from pre-pandemic levels. The lack of spending on restaurants and bars makes it official — we’re now a nation of homebodies.

COVID-19 has been not only a shock to our economy, it has completely disrupted our way of life and made everyday activities uneasy. The elixir for this disruption is the vaccine rollout and widespread inoculation. 

The more we’re able to step out and socialize at concerts, ball games, movie theatres, coffee shops (I’m daydreaming as I type this because I’m so ready to get back to those things) the more Main Street signals that consumers are feeling confident that they can safely resume normal economic activities. And that confidence, in turn, drives more confidence.

3. How is Main Street using its stimulus checks?

Spend versus save – this age-old household dilemma has taken on new meaning during the COVID crisis. 

In March, Congress approved $2,000 in direct payments to most consumers. While some families spent their relief funds on rent and other necessities, wealthier Main Street residents were more likely to sock their dollars away or invest them in the stock market.

In December, Congress passed legislation to provide another $600 in direct payments to most consumers. The latest numbers suggest that that round of stimulus helped boost retail sales in January. 

President Biden’s economic rescue plan calls for mailing a third round of checks. Another wave of direct payments could drive more spending and stimulate the economy. Or it could fuel more savings and prove less effective in propelling the near-term recovery.

My Take

Will Main Street continue to shop until the economy pops? Right now, the recovery is moving ahead, bolstered by cheap borrowing, government spending, and pent-up consumer demand.  However, hard-hit industries from airlines to coffee shops are still feeling the pain of the pandemic. Last week’s jobless claims showed millions of workers still on the sidelines. Main Street may be shopping, but until hard-hit industries and workers are back on their feet again, the economy won’t be poppin’.