US consumer behavior is starting to enter into a new phase for popular product categories since the pandemic began. After shutdowns last March, demand surged for electronics and office necessities amid work and school from home, as well as in-home entertainment (Phase 1). Then there was a huge home upgrade cycle as people spruced up their residences due to spending more time there or moving into a new house (Phase 2). With increasing vaccination rates and the mask mandate starting to get lifted, Americans are now shifting part of their budgets back to spending money on clothes and socializing outside of the house (Phase 3).
Google Trends query volumes is our go-to dataset to monitor consumer trends in real-time. It serves as a leading indicator since people tend to search for an item before making a purchase or engaging in an activity. Here’s what we found:
#1: US searches for “restaurant” and “bar” are at/very near an all-time high since the time series started in 2004:
- That’s especially notable given that queries were flat from 2004 until an especially strong economy finally pushed restaurant/bar searches meaningfully higher in the Summer months of 2016-2019.
- Interest in “restaurant” understandably collapsed after shutdowns and only got back to the old levels of 2004-2015 last Summer, when searches usually peak for the year. With queries already setting records and still seasonal strength ahead, many restaurants will try to make up for lost ground last year during restrictions.
- Searches for “bar” are only 2 percent away from its all-time high in June 2019. Bars were slower to reopen than restaurants in many areas due to restrictions, such as in DataTrek’s headquarters in New York City. Queries usually peak in June, so we expect record interest as they more fully reopen.
With record interest in people dining out, let’s now turn to a few searches related to attire. Demand for new clothing, of course, fell out of favor when people did not have to leave their homes, but is a telling barometer of Americans getting back out of the house.
#2: US searches for “dress” since January 2019 (pre-pandemic):
- You can see how interest in a “dress” dove during lockdowns in the middle of the chart below. Interest also mostly remained stagnant thereafter for the rest of 2020.
- Searches have steadily risen this year and now even exceed the best levels of 2019.
#3: Searches for “heels” and “lipstick” since January 2019:
- Queries for “lipstick” rose through the holidays in November and December of 2020, but then flatlined. Interest has skyrocketed this month, up almost double its levels over the holidays.
- Searches for “heels” started rising over the holidays and have continued to steadily increase this year as well. They are currently up 12 pct more than 2019’s high in March of that year.
With interest in everything from going out to eat to buying clothes and makeup breaking out, here’s why this matters from an investment standpoint:
#1: Most restaurants and bars are locally and privately owned, which potentially means less consumer spending at the margin will go to public companies or even speculative investments like virtual currencies. For example, instead of buying a new laptop (i.e Apple), light fixture (i.e. Home Depot) or products on Amazon like last year, people will allocate more of their budgets to going out to eat or for a drink at restaurants and bars with friends. Of course, there are many public companies that will benefit from these changes in consumer behavior, such as energy companies as people drive more or financials as Americans increasingly use their credit cards. But they won’t be the same winners that gained from stay-at-home trends over the last year.
#2: Clothing is another area that consumers will likely spend money on again over at least the balance of this quarter. There was a huge drop off in retail sales at clothing and clothing accessory stores last year as the chart below shows. Yes, sales in these categories rose to a record $24.8 billion in March, but they were still down 26 pct from March 2020-February 2021 versus the same timeframe in the prior year. Consequently, there’s pent-up demand as people return to normal, pre-pandemic life.
Bottom line: we are at the cusp of the next phase in how US consumers allocate their discretionary spending. More of it will go towards experiences and items that enable Americans to re-engage with the world. Some of it will go to mostly privately owned businesses (i.e. restaurants and bars) as well as retailers. Additionally, the amount of savings and stimulus checks that people contributed to the stock market and virtual currencies last year will likely decline this year as Americans start spending more time and money on what they missed out on in 2020. Many pandemic behaviors will still take time to unwind, but our job is to identify inflection points early and there’s clearly a pivot back to purchases that focus on life outside of the home.