As a pandemic continues to prevent consumers from spending on vacations, entertainment, dining, and the like, more discretionary funds are going toward home improvements and the stock market. Members of The Conference Board — a nonpartisan, nonprofit research and insights think tank — expound on this and more of their findings in the U.S. Consumer Dynamics Report: Q4 2020.
The Q4 survey confirmed that, overall, "pandemic-related forces" (more time at home, reduced opportunities to spend, and enhanced fiscal support from the government) continue to shape consumer behavior in the United States.
"The booms and busts of a few unlikely 'meme stocks' have grabbed recent headlines, but the rise of individual investors tells a broader story about spending habits during COVID-19," said Denise Dahlhoff, Senior Researcher at The Conference Board. "Trends like low interest rates and declining debt concerns — alongside below-normal spending on vacations and out-of-home entertainment due to pandemic restrictions —have left a portion of Americans with more disposable income and fewer ways to spend it."
While consumer spending shrank in almost every category of the survey during the fourth quarter of last year, the share of Americans spending discretionary money on stocks and housing improvements rose.
The authors say historic declines in the relative cost of housing have fueled a decline in spending on essentials.
"In Q4 2020, the share of US consumers' budget devoted to housing costs fell to 18%, a record low and down −3.5 percentage points compared to Q2 2020. Plummeting rental rates in city centers, rent abatements and cuts, temporary rent and mortgage non-payments, and historically low mortgage rates all drove this decline," the study showed. "With these housing savings, total spending on essential goods and services (including food/beverage at home, routine transportation, education, and medical) fell −4.1 ppts in Q4 2020 compared to Q2. Consumers shifted their spending, in large part, to discretionary products (+3.8 percentage points)."
Not surprisingly, most respondents named the economy (26%), health (18%), or job security (9%) as their top concern for the upcoming months. Of note, the researchers said, is that the focus of all three dropped in Q4 from Q3/Q2, the early months of the COVID-19 crisis.