Consumer spending up, uncertainty lingers

Consumer payment preferences have shifted and spending has picked up in recent months, following dramatic declines brought on by the COVID-19 pandemic. However, potential bumps ahead could dampen consumers' ability to spend.

"The recession appears to be behind us and the re-opening of the economy over the past several months has created momentum that should carry us through the fourth quarter," said Jack Kleinhenz, chief economist at the National Retail Federation. "The test is whether consumer spending will be sustained amid wildcard puzzle pieces including policy surprises, the election and a resurgent virus."

Klenhenz's remarks were included in the October issue of the NRF's Monthly Economic Review. The review portrays a "V-shaped recovery" due in part to $1,200 stimulus checks and enhanced unemployment benefits authorized under the CARES Act, a $2 trillion bipartisan economic relief package passed into law on March 27, 2020. Those benefits have expired, however, and negotiations between congressional Democrats and the White House over another round of stimulus spending appear to be at an impasse.

NRF, Fed urge swift action

The Democratic-controlled House of Representatives approved a new $2.2 trillion spending bill to provide economic relief from the pandemic, including new rounds of checks for individual taxpayers and enhanced unemployment benefits. That bill still needs to be approved by the Republican-controlled Senate. But on Oct. 6, President Trump tweeted that he had instructed White House negotiators and Senate Republicans to walk away from the negotiating table until after the November elections. In subsequent tweets, President Trump appeared to change his mind, leaving the state of negotiations going forward unclear.

In the NRF report, Kleinhenz cautioned that an "economic speedbump," such as the failure of Congress to approve additional stimulus spending, could slow down the current recovery, or result in an economic retraction. And in a statement, the NRF made the case again for swift action on economic recovery legislation.

"The pandemic isn't over and neither is the economic crisis it has created," the NRF stated, adding that quick action on a stimulus package is necessary "to ensure we can fix an ailing economy, bring people back to work and spur growth in communities large and small."

Federal Reserve Chairman Jerome Powell took a similar stance in an Oct. 6 speech to the National Association for Business Economics. He called for a robust round of government stimulus money to keep the recovery going. "Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses," he said. "By contrast, the risks of overdoing it seem, for now, to be smaller."

Shifting retail spending patterns

Several new reports illustrate how consumer spending has rebounded, albeit not to pre-pandemic levels. And consumers appear to be adjusting payment preferences. A recent survey by 451 Research, for example, revealed that two in five consumers have been using cash less since the pandemic began, with the sharpest declines among those with household incomes above $150,000 and Gen X (38- to 52-year-olds). For many consumers, the switch away from cash may not be temporary. A new survey by The Strawhecker Group and Visa Consulting & Analytics found 26 percent of consumers plan to use cash less even after the pandemic runs its course.

The 451 and Strawhecker reports also revealed a growing preference for contactless payments. More than one in six consumers surveyed by 451 had made their first contactless payment since the pandemic began. Among those who had already been using contactless, nearly three in 10 (29 percent) have been using contactless payments more since the pandemic began. Further evidencing this trend Strawhecker reported that usage of contactless Visa credit and debit cards rose 40 percent between the second quarter of 2019 and the second quarter of 2020.

Following are additional data points published by Strawhecker:

• Just 41 percent of surveyed consumers said they had a contactless credit or debit card, "showing there's lots of room to grow consumer access."
• Among consumers with contactless credit and debit cards, 60 percent reported using those card for at least half of their purchases.
• Thirty-four percent of consumers expect to use mobile or digital wallets more due to the pandemic.
• Twenty-seven percent expect to use credit and debit cards more once the pandemic passes than they did prior.
• Forty-eight percent of consumers surveyed said they had decreased overall spending since the pandemic began, but 28 percent said they had increased spending.

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