Adjusting to the New Normal Post COVID

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Adjusting to the New Normal Post COVID

There are two seasonal peaks to any given year that are crucial for the American retail, leisure and hospitality sectors: right now (summer) and late fall (holidays). That means how much Americans spend going out and vacationing during the current month and August will have a meaningful impact on Q3’s economic restart from Q2’s COVID doldrum. Activity tends to slow in September until the holidays, so it’s important to maximize the present. There are two current issues at play:

Problem #1: There’s a slew of real-time datasets signaling a weaker service economy during a usually strong period of the year. Consider:

#1: SafeGraph’s cellphone geolocation data – which tracks about 45 million cellphone locations in the US – shows foot traffic to businesses has stalled over the past couple of weeks.

As the charts below show, foot traffic has flattened everywhere from sit down restaurants and bars to movie theaters and hotels. Even foot traffic in supermarkets and general merchandise stores has pulled back slightly, and unlike restaurants and bars all these locations are still open nationwide.

#2: Google Trend search volumes for “beach” and “lake” usually peak in early July, but the latest seasonal high (happening right now) is the lowest in 5 years for the former and not much better than average for the latter. We view this as a leading indicator as people tend to google their plans before actually doing them. Given that Americans have fewer options this year with international travel out of question, you’d think they’d both solidly be at +5-year highs. Whether this weak interest is due to economic uncertainty or fears over capacity limits or contracting the virus, the outcome is the same: the seasonal drivers of employment and consumer spending from tourism to regional hotels, restaurants and shops at lakes and beaches are lagging typical summers.

Our take: we are in the middle of vacation season, but the service economy is not reaping the same benefits as prior years as people travel and go out less due to shutdown constraints or concerns about the virus. Remember: 11% of the US workforce worked in leisure and hospitality pre-COVID, while 10% worked in retail trade. That means those industries getting hard hit by COVID are responsible for employing about 1 out of 5 Americans. While job growth can continue, this dynamic will act as a notable near-term constraint.

The service economy may need to tide itself over until November/December for a pickup in hiring related to holiday shopping and entertainment. Until then, the Federal government will need to pass more fiscal stimulus to keep these workers marginally attached to the labor force.

Problem #2: The slowdown in economic activity coincides with now growing concerns across the US amid flareups in the virus. Google Trend search volumes for “Covid” show interest almost reached another peak last week, nearly registering the attention it garnered when shutdowns first started in mid-March. The states most searching for “Covid” are not initial epicenter locations such as New York, New Jersey and Connecticut, but now everywhere from Vermont, Alaska and Montana to South Dakota, Minnesota and New Hampshire.

With a resurgence in the virus, American behavior continues to adapt to a “new normal” the longer the COVID Crisis persists. Two quick examples:

#1: SafeGraph data showed foot traffic to restaurants stalling or even slightly pulling back, while Google Trends shows searches for “take out food” starting to rise again:

#2: With many gyms still closed or re-closing across the country, searches for “Peloton” are beginning to increase again as people realize they may not be able to frequent their gyms for some time to come:

Bottom line: the COVID-19 Crisis is lasting for a greater period than many of us expected or hoped for, and recent virus outbreaks across the US are only further contributing to US consumers readjusting their behaviors to this “new normal”. As much as the technology sector’s ascent has been remarkable, the backdrop of this data favors further gains.