Consumer remains key for US economy

  • Tweet
  • Share on LinkedIn
  • Share via email
  • Print
  • Download

September 25, 2020
With the US economy so dependent on the power of consumer spending, how might the upcoming presidential election outcome alter the sector’s outlook? Could the prevailing and future political landscape take a back seat to bigger influences driving change in the retail sector?

There are many that believe the world of today is also the world of tomorrow – in that there will be no return to pre-pandemic norms. But from a consumer point of view, are we experiencing a ‘new normal’ or one that continues to transform at accelerating pace?

Future economic policy will also play a role in determining this, as bail out packages and support for the unemployed remain vital to keep consumers spending, which is why Maria Toneva, consumer analyst at Newton, says many eyes are already focused on the US November election. While its outcome is likely to determine prospects for typical areas of concern such as tariffs, the price of goods, the potential for trade wars, and the backdrop for merger and acquisition (M&A) activity, the biggest impact this time may well be determined by the shape and scale of ongoing stimulus packages. Consumer spending, particularly in economies such as the US is of vital importance. One of the areas hit hardest in a typical recession is consumer spending on goods and according to news reports, the US is looking at a pretty severe recession.1 Yet spending has so far remained relatively sanguine, albeit selectively.

Some commentators suggest the better numbers over the summer may just be a reflection of spending from wealthier consumers with secure jobs, illustrating the maxim that the 20% of wealthiest Americans account for up to 80% of all discretionary spending.2

This is why Toneva says her primary concern is not anti-China rhetoric but future job losses and their potential to disrupt US consumer spending and the retail sector.

“Investors who analyze retail are less worried about tariffs moving forward but are more cautious as to what will happen with the consumer environment if Trump rolls back the US’s Supplemental Nutrition Assistance Program (SNAP) benefits3,” Toneva says.

Toneva says benefits received by Americans amid the US lockdown, particularly with respect to unemployment benefits, have been helpful but there is uncertainty as to whether this support will continue from either political party post November. Toneva believes the Democrats are more ‘pro-spend’ in this respect, so overall, consumers and retail companies may do better with a Joe Biden victory in our view.

Although the focus may be on US consumer reactions to the ongoing stimulus packages, it doesn’t mean global analysts aren’t also having to watch some of the commentary taking place around trade and manufacturing. One area many continue to watch carefully concerns US/Sino trade tensions. Having subsided somewhat during the height of the global Covid-19 lockdowns, in early September President Trump spoke about the US ‘decoupling’ from China, saying he wanted to make America into the manufacturing superpower of the world and ending the country’s reliance on China.4

Covid-19 impact

At the start of this US election year, the future of retail companies and any real political impact was expected to be a minor consideration. The onset of Covid-19-related lockdowns changed that. Suddenly the whole world was buying online and the likes of an American multi-national ecommerce company bucked the consumer trends. While job losses rose to record highs in the US in early spring, the company hired 175,000 workers to help keep up with demand; its e-commerce sales growth even accelerated to 5c48% in the second quarter.6

Toneva says food delivery companies also profited from consumers not being able (or wanting to) leave their homes during global lockdowns.

“Retail is such a huge area. For example, any product related to travel may take years to recover from the pandemic but grocery companies saw sales go up 10-20% through the second quarter. “In our opinion, if they can maintain this elevated demand in a post-Covid world, those companies can be very successful,” says Toneva. “The future of some of the retailers depends on the specific sector they are operating in. The pandemic hasn’t been bad for all of retail. It’s very nuanced. Food retail is having the best year it has had in decades whereas apparel bricks-and-mortar stores have been left devastated.” While Toneva agrees the world is unlikely to go back to the way it was in terms of shopping habits, there is still a question over who will be the winners and losers in the realm of online and bricks-and-mortar stores.

Looking for value

Regardless of the outcome of the election, Toneva believes the challenges and opportunities of retail investing in a post-pandemic world will be very similar if not the same, regardless of who is voted into power.

Irrespective of the election outcome, Toneva believes that from a retail standpoint, companies offering less expensive products might fare best. She highlights three areas she believes will continue to be of interest: e-commerce, value and convenience. With regard to value, dollar stores in the US and discounter stores are doing well during this time, she says. “Convenience is mainly highlighted through food delivery companies maintaining their recent heightened popularity. Although restrictions have eased in many parts of the world, consumers are still attracted to the appeal of paying to have meals delivered to their homes versus going out to restaurants and putting themselves in potentially busier and riskier areas.”

“Apart from the important financial support Trump or Biden will give to the unemployed, I don’t see either election outcome having as big an impact on consumers as the ongoing pandemic. The latter is imposing a real and lasting structural change to the way we consume, and that disruption is likely to continue whether we have a Republican or a Democrat in power,” Toneva concludes.

1 Forbes. In today’s deep recession, consumer spending on goods is above pre-pandemic levels. Why? August 12, 2020.

2 Marketwatch. The numbers tell us the economy is better but millions of Americans aren’t feeling it. September 12, 2020.

3 SNAP is a US Federal program that helps low-income working people, senior citizens, the disabled, and others feed their families.

4 New York Post. Trump pledges to ‘decouple’ US from China, accuses Biden of ‘economic treachery’. September 7, 2020.

5 Circa/approximately

6 The Motley Fool. Amazon explosive e-commerce growth accelerating. September 9, 2020.



All investments involve some level of risk, including loss of principal. Certain investments have specific or unique risks. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment.

Recent market risks include pandemic risks related to COVID-19. The effects of COVID-19 have contributed to increased volatility in global markets and will likely affect certain countries, companies, industries and market sectors more dramatically than others.

Views expressed are those of the author stated and do not reflect views of other managers or the firm overall. Views are current as of the date of this publication and subject to change. This information contains projections or other forward-looking statements regarding future events, targets or expectations, and is only current as of the date indicated. There is no assurance that such events or expectations will be achieved, and actual results may be significantly different from that shown here. The information is based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. Forecasts, estimates and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. Please consult a legal, tax or financial professional in order to determine whether an investment product or service is appropriate for a particular situation.

"Newton" and/or the "Newton Investment Management" brand refers to Newton Investment Management Limited. Newton is incorporated in the United Kingdom (Registered in England no. 1371973) and is authorized and regulated by the Financial Conduct Authority in the conduct of investment business. Newton is a subsidiary of The Bank of New York Mellon Corporation. Newton is registered with the SEC in the United States of America as an investment adviser under the Investment Advisers Act of 1940. Newton's investment business is described in Form ADV, Part 1 and 2, which can be obtained from the website or obtained upon request.

BNY Mellon Investment Management is one of the world’s leading investment management organizations and one of the top U.S. wealth managers, encompassing BNY Mellon’s affiliated investment management firms, wealth management organization and global distribution companies. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may also be used as a generic term to reference the Corporation as a whole or its various subsidiaries generally.

No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. BNY Mellon Securities Corporation and Newton are subsidiaries of BNY Mellon.

© 2020 BNY Mellon Securities Corporation, distributor, 240 Greenwich Street, 9th Floor, New York NY, 10286