Pandemic, Lower Consumer Confidence Creating 'Enormous Uncertainty,' Says Economist

An “enormous amount of uncertainty is hanging over the U.S. economy,” said Phil Levy, Flexport chief economist, on a Wednesday webinar on COVID-19-induced changes in retail. Levy referenced a “grim” revised economic forecast last month from the International Monetary Fund showing a deeper contraction into 2020 and slower 2021 recovery than previously forecast.

The IMF said it expects a 4.9% decline in global output this year, 1.9% below its April forecast. It downgraded its projection for U.S. GDP by 2.1 percentage points to minus 8% for 2020. It's forecasting a "partial recovery," with 5.4% GDP growth, in 2021.

Key sources of concern affecting spending in the U.S. are the spread of COVID-19 and expiring stimulus payments at the end of the month. Layoffs are also a concern, Levy said, affecting consumer confidence. Late June unemployment claims of about 1.5 million were down from the previous month, but “1.5 million is still more than double what had been the pre-COVID record for weekly claims,” recorded in October 1982, he noted.

Personal consumption in the U.S. grew in May after bottoming in April, Levy said. Though that’s “encouraging,” consumers are “very responsive” to their income, and “money in their pocket makes a difference” he said. Consumer spending is closely tied to pandemic worries: “The big moves in consumption tend to come around the time when there are announcements about health concerns, or about alleviating health concerns -- not so much announcements about policies” or states shutting down or opening, he said.

With stores closed during the pandemic, e-commerce sales jumped 20%, bringing higher margins to companies, said Kaitlyn Glancy, Flexport vice president-general manager, Northeast. Companies can consolidate inventory and costs into a central hub that serves as a distribution point, she said. They can also reach a broader customer base online, she noted.

The big winners of the COVID period are well-known retail brands Walmart, Amazon and Target that gained new customers who didn’t shop online before the pandemic or only had limited experience, Glancy said. “The big names are continuing to get bigger.”

The electronics category has been a beneficiary of pandemic stay-at-home trends, said Glancy, citing spending on TVs and gaming devices. Consumers are also upgrading their electronics, she said.

Consumers are responding to “click and collect” options, where they can choose to have products delivered or picked up in store, said Glancy. Some 87% of consumers are hoping, and expecting, the model to exist beyond the pandemic, she said.