In the aftermath of the pandemic and lockdowns, it was no surprise that U.S. household consumption quickly collapsed. But the U.S. consumer has been remarkably resilient. Household consumption snapped back with the help of massive support from government programs.
On the latest episode of BlackRock Bottom Line, Russ Koesterich, Portfolio Manager for the Global Allocation team, highlights three main reasons why household consumption in the U.S. has held up so well.
The first, and perhaps most important, is stimulus from the U.S. government. Federal transfer payments — direct payments from the federal government to households — have doubled. This has been a huge prop for retail spending and household spending.
The second reason is that U.S. households came into this crisis in much better condition than was the case during the 2007-2008 global financial crisis. The overall debt to disposable income is at a 20-year-low.
The third factor is record-low interest rates, which have been a huge tailwind for the housing market. A 30-year mortgage is below three percent. This not only supports home buying, but it also supports individuals refinancing their home and tapping into their home equity, which again further supports consumption.
Overall, the U.S. consumer discretionary sector has been an outperformer. But taking a closer look, there are winners and losers. Many of the winners have been obvious, such as internet commerce and stores that have catered to home improvement.
The losers are the flip side of internet retail. Many brick and mortar stores, notably department stores, have lost market share to internet commerce. Another challenged category is related to mobility and the effects of lockdowns on the restaurant, hotel and airline industries.
The bottom line is that we continue to believe that the U.S. consumer discretionary sector can outperform, but the key is to differentiate. Our favorite segments include internet retail, home improvement and the home builder sector.