Stimulus, Summer Vacations & Shutdowns

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Stimulus, Summer Vacations & Shutdowns

Summer vacation season is very important to regional economies across the US as it drives service sector employment and spurs consumer spending. How Americans choose to take trips or not over the next two months will meaningfully impact economic growth and employment. Eleven percent of the US workforce worked in leisure and hospitality pre-COVID, while 10% worked in retail trade. That means those industries hard hit by the virus are responsible for employing about 1 out of 5 Americans.

The problem: a slew of datasets are flashing warning signs about seasonal spending amid recent flare ups of the virus. Three points here:

#1: AAA forecasts US summer travel will fall by 14.6% to total 707 million trips in Q3, down by 120 million trips versus 2019. Travel from July through September had been increasing at an annual rate of 3.2% over the last 4 years. Some more datapoints from AAA:

  • Americans will take 683 million road trips, a slight drop of 3% from 2019. They will be the most preferred form of transportation this summer, accounting for 97% of summer travel.
  • Air travel will make up only 2% of travel volume. Air trip travel volume is “expected at 15.1 million from July to September”, down 74% from last year’s levels.
  • “The share of travelers making plans 48 hours to 7 days before departure – a sign that people are arranging last-minute trips – is significantly higher than normal.”
  • AAA forecasts the national gas price to average at about $2.25/gallon for Q3 2020, down 15% from $2.66 last summer and the cheapest since 2016.
  • Advance booking for hotels “in general are nearly 25% shorter than this time last year.”

Our take: Americans want to make Summer travel plans, but are doing so more carefully and last minute, also opting for long weekends over extended vacations. These decisions make sense given the uncertain nature of the virus, changing lockdown and reopening rules in states, and mandated social distancing policies and capacity restraints at various establishments. Shorter road trips provide individuals and families with more control over their own environment and a less expensive way to travel with gas prices so low.

#2: SafeGraph’s cellphone geolocation data – which tracks about 45 million cellphone locations in the US – shows foot traffic to businesses flattened in the back half of June.

As the charts below show, foot traffic has slowed everywhere from sit down restaurants and bars to counter service restaurants and coffee and snack bars. That makes sense as new hot spot states, such as Texas and Florida, roll back their bar and restaurant reopenings amid a spike in virus cases. By contrast, foot traffic to supermarkets and general merchandise stores have remained steady as consumers wear masks and socially distance to purchase essential items like food and general goods.

Our take: the latest slowdown in foot traffic shows increased caution by consumers and their willingness to venture out with discretionary spending in public, leisurely settings.

#3: Google Trends search volumes also confirm the past two datasets:

  • Queries for “RV” and “boat” continue to climb into the summer months; the former is at a 5-year high and the latter slightly bests levels seen last summer.
  • Searches for “Delta”, “American Airlines”, and travel booking site “Expedia” remain depressed below pre-COVID levels.

Our take: we continue to believe consumers will go out and spend this summer, but closer to home and in environments better suited for social distancing (i.e. RVs and boats).

Bottom line: in an odd but very real way, this is why US equity markets continue in rally mode. Given everything we’ve just shown you it is clear that the American economy has hit a speed bump on its road trip to recovery. This has come at a very bad time for the +20% of the population that relies on consumer discretionary spending to employ them and pay their wages. It is, in other words, the perfect setup for pushing Congress into another sizeable stimulus package before the end of July expiration of extended unemployment benefits. Markets see this and are explicating betting that whatever Congress comes up with will be very large indeed.

Sources:

AAA 2020 Summer Travel Forecast: https://newsroom.aaa.com/2020/06/aaa-forecasts-americans-will-take-700-million-trips-this-summer/

SafeGraph Foot Traffic Data: https://www.safegraph.com/dashboard/reopening-the-economy-foot-traffic?s=US&d=06-28-2020&i=all