Is the American consumer “still in bloom or pending gloom?”
That was the question posed by a report penned by 15 JP Morgan analysts, the intent of which was to examine the economic landscape as stimulus money ebbs and the U.S. economy reopens. Sectors examined included “discretionary retail, food at home/away from home, travel, housing, and autos.”
The panel described its outlook as “constructive,” thanks to a healthy consumer and pent-up demand. While it did express caution regarding business travel, leisure-travel prospects were seen as “very favorable.” Areas of greater spend during COVID-19 — home improvements and consumer electronics — are expected to revert to normal levels, while “service-based consumption” will improve. The consensus was that consumers are poised to support this, thanks to higher wages and declining unemployment.
Backing this up are “record” levels of cash on hand, thanks to leftover stimulus payments and money saved during the pandemic. The analysts also cited the “wealth effect” created by lower delinquencies and revolving debt. Personal-consumption expenditures are charted to spike 20 percent in the second quarter, then 12 percent in the second half of the year, manifesting continued strength into early 2022. Since early May, wrote Morgan analysts, Chase credit card outlays have increased 13%.
Among several consumer sectors showing steadiness and/or improvement, travel and entertainment were surfing a positive wave, “with transactions in the seven days ending June 7 down just 4% versus pre-pandemic levels.” Airline and hotel bookings were on the upswing, if still short of pre-COVID levels.
“This setup is ideal going into the 2021 summer/holiday and back-to-school season, which we believe will be one of the strongest on record due to robust demand and pricing environment — we believe consensus estimates are still too conservative and not pricing in this outcome,” wrote the Morgan cohort.
Dining, John Ivankoe wrote, would be “a lot like pre-pandemic, just busier.” While conceding that 14 percent of American restaurants have closed permanently, he shook this off as a market correction. “A closed restaurant almost always is reopened as another restaurant, and we expect supply to be largely caught up by end of C22,” he wrote. “Many operators have been able to generate higher sales despite lower labor levels, largely because of a pivot toward off-premises consumption.”
As for airline passenger loads and fares, “Summer leisure demand for air travel continues to handily outpace our initial forecasts, as well as those of managements, several of which have recently bolstered their expectations for the summer peak,” wrote Jamie Baker, noting that the picture is further brightened by a relative lack of fare discounting.
This tied in with lead gaming analyst Joseph Greff’s assessment of the prospects for gaming, as he projected that airlift into Las Vegas would exceed 2019’s benchmark numbers by the end of the year, adding that Vegas occupancy reached 84 percent in April.
“Corporate travel has been slower to recover, including upscale brands and urban hotels,” he conceded, and the recovery of Las Vegas has been pegged to the return of conventions and businessmen. “Green shoots for the corporate travel recovery abound, but where it settles this fall when many more offices are set to open up is still hotly debated.”
