The trend that helps explain why the economy is still in trouble — and the recovery is uneven
The U.S. economy has long been driven by consumer spending. Right now, people’s spending habits are weird. They are shelling out money to buy new homes or upgrade their existing ones. Plus, they are buying lots of goods — refrigerators, dishwashers, cars, lumber, patio furniture. But they are barely purchasing any “services.” Spending is down significantly from a year ago on restaurants and hotels (19 percent drop), entertainment (32 percent down) and even health care (6 percent decline).
These trends make sense in a pandemic when many are staying home, but they also explain why the U.S. economy has only recovered about 66 percent of its coronavirus losses — and why this recession has been such a devastating blow to women and minorities.
Overall consumer spending is still down massively from a year ago. That’s because spending on services used to be almost double spending on goods. So even though there’s been an uptick in spending on homes and home renovation, it’s not nearly enough to make up for the steep drop in travel, eating out and fun evenings at the ballpark or arcade.
What makes Workman — and economists and business leaders across the nation — nervous is that it could be a long time until spending on services gets back to anything close to its pre-pandemic levels. How many businesses can survive the winter? How many more workers will be laid off? There’s a real danger of stalling — or even backsliding this winter.
“Right now, I feel like dumbass for doing this restaurant,” said Workman, 53, a longtime chef who owns Kountry Cookiin’. “My sales in 2017 were six times as much as my best day now.”
Workman has tried everything he knows to lure dining customers back. He’s mailed out coupons. He’s cut prices. He’s offering free delivery. He’s added new menu items and outdoor tables where people can look out at West Virginia’s picturesque fall colors. He’s even installing a few casino-style video poker machines as a last attempt to get people back. Business remains anemic. People just don’t want to eat out much.
“It seems to be two different economies. In construction, I’m so busy I can’t keep up and everyone seems to have thousands in disposable income to spend. But come to the restaurant and everyone is so broke they can’t afford a $5 sandwich,” Workman said.
Coronavirus cases are rising again, driving people to stay home again regardless of whether a formal “lockdown” is in place or not. Workman also blames Congress for not passing another round of stimulus.
Workman says his restaurant’s business was better in May and June when the federal government mailed out $160 million stimulus checks and unemployment payments were several hundred dollars higher than they are now, giving people more money to spend. He plans to close Kountry Cookin’ in the spring if there’s no turnaround.
The economy is set to be hit by two powerful forces through the end of the year: rising coronavirus cases and dwindling government support. Nearly 13 million Americans are actively looking for work.
“The resurgence of the pandemic without an increase in policy support will deal yet another blow to businesses engaged in high-touch services,” wrote Moody’s Investors Service Vice President Madhavi Bokil in a note to clients. “Some of these firms may never recover, leaving a large number of people out of a job for an extended period.”
Incomes are starting to noticeably decline, another red flag for consumer spending.
On Thursday, the latest government report came out showing that the U.S. economy rebounded 7.4 percent in the third quarter. But the report also said disposable personal income fell by 4.4 percent, on the heels of a 10 percent rise in the second quarter, when the Cares Act pushed billions of dollars out to U.S. households. The drop in income was the “most important line,” tweeted William Spriggs, chief economist at the AFL-CIO.
It was a reminder that many households don’t have as much money to spend as government aid has dropped, and there still aren’t nearly enough jobs for everyone who wants one.
The deep hit to the service sector is driving the inequality of this recession. The service sector heavily employs women, especially Black and Hispanic women.
Priscilla Jenkins hasn’t worked since mid-March. She was a cook at an Italian restaurant in Pensacola, Fla., making $11 an hour. It wasn’t a lot of money, but it was enough for her to pay her $450 rent and help take care of her grandchildren. Now she’s struggling.
“I just got a call yesterday from the electric company. They say I owe $744,” Jenkins said. “Then I got an email about my car. I owe $900 on that. They gave me until the end of the month to pay.”
Jenkins, 57, was grateful Congress acted quickly in the spring to send stimulus checks. The Florida website kept crashing when she tried to file for unemployment. She started applying in March and wasn’t able to submit until June, she said. The stimulus check and her savings carried her until unemployment money arrived.
So far, she still hasn’t been able to find a job. Restaurants aren’t hiring. And her savings and stimulus are gone. Her unemployment benefits also stopped. She keeps calling to figure out why. Someone told her it was backlog in the system and would be sorted out. That was nearly a month ago.
On Thursday, Jenkins drove her old Dodge Caravan to a place that hires day laborers, hoping she could get on a cleaning or roofing crew. She’s also applied to be a corrections officer, one of the few places hiring.
“I have always worked. It’s never been like this,” Jenkins said, her youngest grandchild, a 3-month-old, crying in the background of the call.
For years, economists encouraged people to find opportunities in the growing service sector. But the pandemic has upended that.
As kitchen renovations soar, America’s restaurant cooks continue to struggle. The overall economy is unlikely to rebound until that balance gets back to something more normal.
