Consumer Strength

May 22, 2020

There were 20.5 million jobs lost in April alone. Our unemployment rate, now at 14.7%, is the highest it has been since World War II.1 The data is likely even worse if you factor in the millions who have dropped out of the workforce entirely as well as those who are underemployed.

Gross Domestic Product (GDP) shrank by 4.8% in the first quarter, and we are expecting the data to worsen in the second quarter.2

The good news is that consumers entered this recession relatively strong. The question is whether they will come out of it healthy enough to help the economy revive. Consumer sentiment was over 100 in February, which is well above average.3 Although it dipped down to 71.8 in April, it slightly recovered in May.4

And households have moved on from hoarding toilet paper to hoarding cash. Consumers are saving at a rate not seen since the early 1980s.5 Assuming the situation continues to improve and restrictions are lifted, some of these savings will be used for deferred consumption and get injected back into the economy. The consumers who still want to go on vacation, eat at restaurants, and so forth will start spending again. This pent-up demand will most certainly aid our recovery.

The market seems to be behaving in a way that suggests it is priced for a shorter lockdown and relatively healthy households to emerge from it. Although most stocks are still well in the red year-to-date, it has recovered from March lows and appears to be factoring in growth resuming next year.6

As Wharton professor Jeremy Siegel recently suggested, more than 90% of the value of a company is from earnings generated more than 12 months in the future.7

While the above numbers are sobering, it could be that much of this is already priced into markets. We still expect volatility to remain above average since we have no valid comparisons for our current situation in modern times. If the consumer – which was driving growth in 2019 – can come out of this period with some purchasing strength, we may see earnings and growth recover nicely in 2021.


1. CNBC.com (5/8/20) – Unemployment rate reaches 14.7% – Here’s what to watch
2. CNBC.com (4/29/20) – US GDP shrank 4.8% in the first quarter amid biggest contraction since the financial crisis
3. CNBC.com (2/14/20) – Consumer sentiment rises in February even amid the coronavirus outbreak
4. CNBC.com (4/24/20) – US consumer sentiment falls for a third consecutive month
5. CNN Business (4/30/20) – Americans are hoarding cash: Savings rate hits its highest level since 1981
6. Yahoo! Finance (data as of 5/13/20) – S&P 500
7. Business Insider (5/8/20) – The market bottom is in, and 2021 could be a boom year for stocks, Wharton Professor Jeremy Siegel says

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