The coronavirus pandemic has caused consumer spending, the economy’s key driver, to plummet across the country as Americans struggle through a recession. But some states are recovering more quickly than others.
Statewide stay-at-home orders first froze the economy in mid March. For that month, the Commerce Department said consumer spending fell 7.5%, the sharpest monthly drop on records that go back to 1959. Experts are predicting the worst is yet to come with April’s numbers to be released later this week.
However, new real-time data from economists at Harvard and Brown universities shows that while spending nosedived in every region, some states are leading the way in rebounding.
“On average, places with more widespread coronavirus cases did see spending fall a little bit further, but that’s not the main thing we see determining differences,” said John Friedman, a professor of economics at Brown University. “Instead, we see more differences between higher- and lower-income places.”
Friedman is one of the economists behind Opportunity Insights, a Harvard-based institute of researchers and policy analysts that gathers information from large private companies, such as credit card processors and payroll firms, to provide statistics on economic indicators like consumer spending and job postings. While much economic data is published with a lag of a month or more, the tracker’s goal is to help policymakers with to-date information.
The day-over-day spending data paints a striking picture through May 10. Looking at percentage change in consumer spending compared to early January 2020, all states show plunging numbers in March and April, but in some regions spending is already starting to climb toward pre-pandemic levels.
Coronavirus Causes Consumer Spending to Plummet Across the U.S.
The chart below illustrates the percent change in spending by all consumers compared to early January 2020 in each state. Hover or tap to see the day-over-day changes.
Source: Opportunity Insights Economic Tracker. See here for the full methodology on how daily consumer spending values were calculated.
Credit: Amy O’Kruk/NBC
Among the states rebounding are Arkansas, Kentucky, Tennessee and West Virginia, places not often thought of as economic powerhouses, all falling in the bottom 15 for U.S. median annual household incomes. The upticks largely appear after April 13, the week stimulus checks begin to go out.
Friedman said it’s likely that part of the reason for these outliers is that lower-income residents respond more to stimulus than residents in higher-income areas. This can be for a number of reasons: a larger proportion of the population could have received stimulus money, lower-income residents tend to spend stimulus checks faster, and residents in low-income areas are less likely to be staying at home while businesses are more likely to be open, so economic patterns are less disrupted.
On the other hand, the sharpest downturn in consumer spending is in Rhode Island, where its numbers continuing to hover around -30% in May compared to early January. While the reason is unclear, Friedman said the state tends to be higher-income, with a strong tourism industry, among other factors. In 2018, 13.4% of all jobs in the state were sustained by the travel economy.
Of course, consumer spending is only one economic indicator, and while it may show signs of recovery in a state, employment levels or small business revenues may remain low, influencing the broader economic picture.
The tracker’s real-time data also comes with tradeoffs. While government statistics will include people’s spending on housing, such as rent or mortgage payments, or car purchases, these activities aren’t typically included in the card payment data used by the Opportunity Insights economic tracker.
But Friedman said the perfect shouldn't be the enemy of the good. Especially on the local level, governments need current information to react to a crisis, understanding for example if stimulus checks have gone far enough compared to finding out weeks or months later that people couldn’t buy groceries.
Going forward, he wants to see the way the government tracks and releases economic statistics better meet policymakers' needs by providing up-to-date information on a national and granular level.
“There's no reason that over time government statistics can't evolve to bring in real-time information,” he said.
Track Consumer Spending Across the U.S. By Category
Researchers at Harvard and Brown are analyzing close to real-time data about how American credit and debit card spending now compares to January, before the pandemic hit.
Note: 7 day moving average. Source: The Opportunity Insights Economic Tracker
Credit: Amy O’Kruk/NBC
